Tax season officially kicks off Wednesday, later than usual because lawmakers only this month passed legislation to address expired tax cuts. The IRS needed time to update its forms and systems.
Not a problem for procrastinators, but a problem for others used to the tax season starting in mid-January.
"It is very painful and very inconvenient" for early filers counting on refunds to pay off holiday credit card bills or other debt, said Mark Steber, chief tax officer for Jackson Hewitt Tax Service. Many tax preparers, including Jackson Hewitt, have been preparing electronic returns and are just waiting to hit the send button Wednesday.
If you prepare your own return, you can expect this tax season to look much like last year. Despite all the tax drama in Washington late last year, Congress ended up extending most of the expiring tax cuts and making few changes.
"I have never seen a year with fewer changes than this," said Jeff Pretsfelder, a senior tax analyst at Thomson Reuters. "It's a very odd sort of thing."
Still, there are a few new twists and some tips on how to lower tax bills and protect your refund. Consider:
IRA charitable donations Taxpayers 701/2 and older have until Thursday to donate up to $100,000 directly from their individual retirement account to a charity without having to pay taxes on the distribution. The donation will count for 2012.
This tax break expired in 2011, and taxpayers weren't sure throughout last year whether it would be extended, said Jackie Perlman, principal researcher for the H&R Block Tax Institute. That's why Congress gave IRA owners more time.
The advantages is that the charitable distribution counts toward the minimum distributions that older savers must make each year from a traditional IRA. Plus, charitable distributions aren't considered income on tax returns. This lowers adjusted gross income, potentially making taxpayers eligible for more deductions.
Another twist for this year only: If you took a required distribution in December, you can still write a check to a charity by the end of January and have it treated as a charitable distribution for 2012, Perlman said.
This tax break, though, is only good through 2013, and it's unclear whether Congress will extend it again, given that it may appear to be a tax break for wealthier households, warned Rande Spiegleman, vice president of financial planning for Charles Schwab.
Beef up savings You have until the April 15th tax deadline to contribute to an IRA for 2012. The maximum contribution is $5,000, or $6,000 for those age 50 and up.
Contributions to a traditional IRA are fully tax deductible if you don't have a retirement plan at work. If you do, you can deduct all or some of your contributions if your adjusted gross income for 2012 is under $68,000 for singles and $112,000 for married joint filers.
There's no tax deduction for contributing to a Roth IRA, but withdrawals are tax-free in retirement. Full or partial contributions can be made to a Roth for 2012 if income is under $125,000 for singles or $183,000 for joint filers.
Families within certain income limits also have until the tax deadline to make a 2012 contribution of up to $2,000 to a Coverdell Education Savings Account for a child. There's no tax deduction, but withdrawals from this investment account can be tax free if used for education expenses from kindergarten to college.
Adoption expenses A credit for adoption expenses has been made less generous for 2012, thanks to abuse of the tax break, said Thomson Reuters' Pretsfelder. Parents, depending on their income, can claim a credit of up to $12,650 per child in 2012, or $710 less than the year before. And the credit is no longer refundable.
A credit reduces your tax liability dollar for dollar. But a refundable credit means that you can get the credit as a refund if you don't owe any taxes.
Travel expenses It used to be that even if you were on business, you couldn't deduct expenses paid for lodging near where you live, Pretsfelder said. Starting in 2012, local lodging is deductible for business travelers — provided it's not extravagant. That would include cases in which workers on the job couldn't get home because of a snowstorm, he said.
Withholding adjustments Don't reduce your tax withholdings from your paycheck to make up for the loss this year of the 2 percent payroll tax holiday, Perlman said. You might owe taxes next year if withholdings fall short, she said.
But married couples might want to adjust withholdings to have more money taken out of their paycheck for an entirely different reason, she said. The health care law imposes a 0.9 percent levy on wages above $200,000 for singles and $250,000 for joint filers starting this year.