Please note: This is an archived article. It does not apply to current-year tax preparation. Please see our current article to read up-to-date tax information.

This article will help you understand basic federal income tax rules and answer some of the most common questions taxpayers ask.

Are there any changes for the 2012 tax year?

Yes. The following are some of the important changes:

• Personal and dependent exemptions will increase by $100 to $3,800.
• Standard deductions have increased in all categories, including a $300 increase for married couples filing jointly.
• The maximum Earned Income Tax Credit (EITC) will increase to $5,891 from $5,751.

These will be discussed in greater detail below, but a complete list can be found by visiting the IRS website.

Do I have to file a federal tax return?

Whether you are required to file a tax return depends on your age, filing status, and gross income. The amount of taxable income you can receive before you are required to file a tax return is called a filing threshold. Use IRS Table 1.2012 Filing Requirements Chart for Most Taxpayers to see if you are required to file a federal tax return for tax year 2012. Note: If your income was below the amounts in column 3 of the table, you do not need to file. But please see the box below!

IMPORTANT NOTE: Filing a tax return may be beneficial to you, even if your 2012 income was so low that you are not required to file a tax return. This is because at low-income levels, you will more than likely be entitled to a refund of taxes that were withheld from your paycheck during the year. You also may be eligible for other refundable tax credits. A tax refund means money in your pocket, which you might miss out on if you don’t file a tax return.

Different rules apply if you have been claimed as a dependent by another taxpayer. One example is the case of a college student whose parents have claimed her as a dependent on their tax return. Although the student’s parents claimed her as a dependent, the student may still have to file taxes. Whether or not depends upon the amount of the student’s earned income (such as tips, wages, and other money earned for work performed) and unearned income (such as bank interest). The filing requirements for someone who has been claimed as a dependent also differ based upon the age and marital status of that dependent. Therefore, if someone claims you as a dependent and you had income in 2012, you should review Table 2 of IRS Publication 501 to see if you are required by law to file a tax return.

When do I have to file?

This year’s deadline to file your tax return falls on April 15, 2013.

What do I do if I am unable to file my tax return on time?

If you are unable to file to file by the April 15 deadline, you should apply for a six-month extension by going to the IRS website and filling out Form 4868. These requests are automatically granted. But note that this is only an extension of time to file, not the time to pay. This means that you have to estimate your tax liability for 2012 and pay any amount due. Filling out this form gives you until October 15, 2013, to file. You will also avoid a late-filing penalty, and you may also reduce or eliminate interest and late-payment penalties.

What is a filing status?

This is the category used by the IRS to determine tax filing requirements, standard deductions, and eligibility for certain credits and deductions. It is an important factor in determining what taxable income will be, and is based mainly upon marital status and family situation. There are five types of filing status: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child. Note that your marital status on the last day of the year determines your marital status for the entire year. You can choose Single filing status if you are divorced or legally separated according to state law. Head of Household generally applies to taxpayers who are unmarried. To qualify for this status, you must have paid more than half the cost of maintaining your household for yourself and a qualifying person. For more information about filing status, see IRS Publication 501: Exemption, Standard Deductions and Filing Information.

What is the difference between an exemption and a deduction?

Exemption. An exemption is a fixed amount of money that the IRS determines should be excluded (exempt) from being taxed. Each person in the household is eligible for an exemption. When taken, the exemption reduces the amount of overall income on which you are taxed. The amount of the exemption for 2012 is $3,800. Let’s see how this works:

Maria is a single parent with one child. She earned $24,000 in 2012. Maria can take a personal exemption for herself of $3,800 and a dependent exemption of $3,800 for her child. Therefore, she can take a total of $7,600 in exemptions:

Example:

$24,000		Maria's Adjusted Gross Income
-   7,600		Exemptions
$16,400		Adjusted Gross Income, less exemptions

As you can see by our example, Maria will only pay tax on $16,400. This amount will be reduced more by other deductions and tax credits.

Deduction. You can also claim deductions, which are amounts subtracted from your taxable income. Generally, deductions are eligible expenses taxpayers are allowed to report. You can choose whether to take a standard deduction or itemize your deductions. You should choose which one is the most beneficial to you. A standard deduction is a set, flat amount determined by the IRS. Each household can take one standard deduction. You itemize your deductions when you specify item by item what was spent, such as mortgage interest, unreimbursed business expenses, medical expenses, state taxes, and charitable deductions. The dollar amount of your standard deduction depends on your filing status. Table 6, the Standard Deduction Chart for Most People in IRS Publication 501 lists the dollar amount of the standard deduction for the 2012 tax year.

We will use our previous example to show how deductions work. Remember, Maria’s taxable income went down from $24,000 to $16,400 after exemptions. Now let’s adjust for deductions based upon the following facts. Maria rents an apartment and does not have a lot of deductions to itemize such as mortgage interest, property taxes, or unreimbursed business expenses. She will take the standard deduction. Since she is a single parent who provides all the support for her daughter, her filing status is Head of Household. Based upon Table 6, we see that Maria can take a standard deduction of $8,700. In our example:

$24,000		Maria’s Adjusted Gross Income
-   7,600		Exemptions
$16,400
-   8,700		Standard Deduction
$  7,700		Taxable Income

What about tax credits?

Unlike exemptions and deductions, which reduce the amount of income on which your tax is calculated, tax credits reduce the actual amount of your tax. There are several tax credits available for families such as the Child Tax Credit, the Child and Dependent Care Credit, and the Earned Income Tax Credit (EITC).

EITC. The EITC is one of the most valuable tax credits because it is fully refundable. This means you can still get money paid back to you, even if you did not owe any tax. The amount of the EITC varies based on income and family size. There are many rules to qualify for the EITC, which can be found in IRS Publication 596. If you do qualify for the EITC, the amount you will get back depends on the amount of your earned income (for example, wages and tips). See the table below for the maximum EITC credit amounts for the 2012 tax year.

2012 EITC
You will qualify for some amount of EITC if you earn less than…	Maximum Income Single/Head of Household	Maximum Income Married Filing Jointly	Maximum  Credit
No qualifying children	$13,980	$19,190	$   475
With one qualifying child	$36,920	$42,130	$3,169
With two qualifying children	$41,952	$47,162	$5,236
With three or more qualifying children	$45,060	$50,270	$5,891

Where can I go to get help filing my tax return?

If you are a low-income taxpayer, there are a number of resources to help you file your taxes for free.

IRS Free File Program. This program makes commercial tax preparation software available to low-income taxpayers at no cost. If you had less than $57,000 in adjusted gross income in 2012, these programs will help you complete and file your tax return at no cost. Go to the IRS website and click on the Free File link. You will need to select the tax software that best suits your needs. Once you choose a preparer, you will leave the IRS website and be taken to the commercial preparer’s site. Based upon your answers to income and family information, a tax return will be prepared on your behalf and filed electronically. Note: This may not be an option for filing your state tax return, so you may want to consider one of the other in-person tax preparation options listed below.

Volunteer Income Tax Assistance (VITA). The VITA program generally offers free tax preparation services to people with incomes below $51,000. VITA sites are staffed with volunteers trained to prepare returns and are located at libraries, senior citizen centers, and other local community centers. To find the VITA center in New Jersey nearest to you, call 1-800-906-9887 or see Find a Location for Free Tax Help from the IRS website.

Free Assisted Self-Help Tax Preparation (FAST Program). FAST combines the IRS Free File Program with VITA sites and can be a good way for people to prepare their own tax returns with some on-site personal assistance. Some VITA sites now make computer terminals available to taxpayers who can prepare their own taxes at no cost using free tax preparation software.

What can I do if I think I am the victim of identity theft?

According to the IRS Taxpayer Advocate Service, identity theft is one of the most serious problems facing taxpayers today. For IRS purposes, identity theft is using a stolen name and Social Security number (SSN) to fraudulently obtain a tax refund from the IRS. When the real taxpayer files a return claiming the refund, the return is rejected by the IRS and the victim cannot get his or her refund. This does not include going to a fraudulent tax preparer. If you allow a preparer to file your return, but he or she redirects the funds to their own account, the IRS currently states it is not involved and you must sue the preparer directly. This can be a major issue if you are unable to find the person again.

On average, it takes six months or more to resolve a stolen identity case involving the IRS refund obtained with a stolen SSN. The IRS reported nearly 650,000 active identity theft cases at the end of 2012. The IRS created the Identity Protection Specialized Unit to be a point of contact for victims, but the best way to avoid this situation is to protect yourself. If you know or suspect your identity has been stolen for tax return purposes, contact the IRS at 1-800-908-4490 as soon as possible to begin getting back on track. To help protect yourself, remember these five areas to protect:

1. PROTECT your SSN. Do not give your SSN unless it is required. Do not be afraid to ask why the business is requesting your SSN and/or if there is an alternative method of identification. Do not carry your Social Security card unless it is needed.
   
   
2. PROTECT your financial information. Bank account numbers, ATM cards, and PINs should all be guarded. Also be sure to check and double check your refund information on your tax return. If you expect a refund to be direct deposited, make sure the number is correct on your tax return (page 2 of the 1040, below line 74). If you expect a tax refund physical check, make sure the address and name(s) on your return are correct.
   
   
3. PROTECT your credit history. Check your credit report at least every 12 months by contacting one of the three official credit report companies (Equifax—800-525-6285, Experian—888-397-3742, and TransUnion—800-680-7289). You are entitled to one free credit report from each company per year.
   
   
4. PROTECT your computer. Use anti-virus software and update security patches often. For the best protection, it is also good to periodically change your passwords for your Internet accounts and make your security questions something only you can answer. Also keep in mind that the IRS does not initiate taxpayer communications through email and will not ask for personal identification information. Emails claiming to be from the IRS have been used to send attachments or links containing computer viruses.
   
   
5. PROTECT your personal information. Do not give personal information to anyone you have not contacted yourself. Be absolutely sure you know who you are dealing with before revealing personal information. This includes your tax preparer. If you have not dealt with the preparer before, ask for verification. This could be their Preparer Identification Number (PTIN), which should be included on your tax return, or their CPA license number. You also may verify the tax preparer's license by checking the NJ Division of Consumer Affairs website.

Were You Affected by Hurricane Sandy?

The IRS is providing tax relief to individual and business taxpayers in areas declared Presidential Disaster Areas. In New Jersey, that includes all 21 counties.

Do charitable relief payments I receive count as income for tax purposes?

Disaster relief payments for losses incurred as a result of Hurricane Sandy made to you by your employer or any person are not included in your taxable income. This includes money given to you for necessary personal, family, living, or funeral expenses that were not covered by insurance. They also include costs that weren’t covered by insurance to fix your personal residence or repair or replace your household items. However, reimbursed lost wages are taxable.

Can I take a tax deduction for the cost of items that were destroyed or lost in the Hurricane?

Yes, in most circumstances you may deduct a “casualty loss” relating to your home, household items, and vehicles on your federal income tax return. A casualty loss is defined as “a loss that is not covered by insurance or another form of reimbursement.” Also, if you live in a federally declared disaster area as detailed above, you have the choice of claiming the deduction on your 2012 or 2013 tax year. You should consult with a tax professional to determine which tax year would be most beneficial to you.

What can I do if I have lost all my paperwork?

Reconstructing or recreating records after a disaster like Hurricane Sandy is essential for tax purposes. Your paperwork may have been damaged or destroyed. You may need to submit your paperwork to the IRS to prove that you have suffered a loss and the value of that loss. These IRS resources may be able to help:

• IRS Disaster Assistance Hotline, 1-866-562-5227 (Monday–Friday from 7 a.m. to 10 p.m. local time).

• IRS Publication 2194, Disaster Resource Guide for Individuals and Businesses.

• IRS Publication 584, Casualty, Disaster, and Theft Loss Workbook—This can help you make a list of stolen or damaged personal-use property and figure the loss. It has a room-by-room listing to help recreate an inventory and figure the loss on the home, its contents, and motor vehicles.

• IRS Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook—This is available to help businesses list stolen or damaged business or income-producing property and to figure the loss.

• Form 4506, Request for Copy of Tax Return.

• Form 4506-T, Request for Transcript of Tax Return.

Be Aware of Fraud

Consumers should be aware of possible scams taking place in the wake of Hurricane Sandy. After disasters, it is not uncommon for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. You may be contacted by telephone, social media, email, or in person.

The IRS cautions both hurricane victims and people wishing to make disaster-related charitable donations to avoid scam artists by following these tips:

• To help disaster victims, donate to recognized charities.

• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website, www.IRS.gov, has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax deductible. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) website.

• Don’t give out personal financial information, such as Social Security numbers or credit card and bank account numbers and passwords, to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.

• If you want to donate to a charity you believe is legitimate, don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Taxpayers suspecting disaster-related frauds should visit the IRS website and search for the keywords “Report Phishing.”

For more information and a series of informational tax videos, see the Taxes section of this website. If you have further questions, please contact the Tax Legal Assistance Project at Legal Services of New Jersey at 1-888-LSNJ-LAW (1-888-576-5529).

This information last reviewed: Feb 20, 2013