(ARA) - Individuals and businesses spend more than 7 billion hours a year complying with federal tax-filing requirements, according to the Internal Revenue Service.
To reduce the amount of time you spend, and maybe how much you owe, follow these seven tips from USAA when preparing your 2011 tax return.
1. Watch that deadline. The tax code is always changing, and the filing deadline is a moving target, too. This year, it's April 17. The IRS extended the deadline because April 15 falls on a Sunday and April 16 is Emancipation Day, a holiday in Washington, D.C., If you file for an automatic six-month extension of your tax return, be aware that the extra time only covers the paperwork. The IRS still expects you to pay your tax liability by April 17. If you don't, you'll be subject to interest and penalties.
2. Get college credit. Scheduled to expire at the end of 2010, the American Opportunity Tax Credit was extended through December 2012 and is worth up to $2,500 per college student. The college tax credit is only available for tuition, fees and course-related books and supplies at an eligible post-secondary educational institution. Room, board and transportation aren't covered. The full credit of $2,500 is available for those whose adjusted gross income is $80,000 or less if single and $160,000 or less if married filing jointly. The credit is reduced if you earn more. Also, you don't qualify if your adjusted gross income is greater than $90,000 if you're single or $180,000 if you file a joint return.
3. Get help with your energy-saving enhancements. Did you invest in new insulation, a heater, an air conditioner, windows or doors in 2011? If so, you may be eligible for an energy efficiency tax credit valued at 10 percent of the cost, up to a credit of $500 for qualified purchases. This tax credit applies only to an existing home that is your principal residence. New construction and rentals don't qualify.
Bigger projects are worth bigger bucks. If you installed a geothermal heat pump, small wind turbine or solar energy system, you're eligible for a credit of 30 percent of the cost with no limit.
While the 10 percent credit expired Dec. 31, 2011, the larger one will be available for purchases made through December 2016.
4. Understand a new twist in investment tax reporting. Until recently, the burden of calculating gains and losses on the sale of investments fell on individual taxpayers. That's changing as this responsibility is gradually transferred to financial institutions.
If you bought and sold an individual stock - not a mutual fund - in 2011, your institution will calculate the gain or loss and report it to you and the IRS on Form 1099-B. This only applies to the sale of stock shares you purchased after Jan. 1, 2011. You'll still be responsible for calculating the gains and losses from the sale of shares purchased before then, though your firm may provide some calculations for your information only.
As the transition continues, financial institutions have begun calculating gains and losses on the sale of mutual fund shares acquired after Jan. 1, 2012.
5. Hit by a natural disaster? Seek tax shelter. With the onslaught of tornadoes, floods and blizzards, 2011 saw more than its fair share of catastrophes. If you were among the victims, you can take an itemized casualty loss deduction for property losses that weren't reimbursed by insurance.
Casualty loss deductions are subject to two limits:
1. After tallying your losses from an incident, subtract $100 from the total. (If disaster struck you more than once in 2011, subtract $100 from the total associated with each event).
2. To calculate your total for the year, add up the losses (after the $100 adjustments) from each event and subtract 10 percent of your adjusted gross income from that number. The result is your allowable losses for the year.
6. Pay for that 2010 Roth IRA conversion. Did you convert a traditional IRA to a Roth IRA in 2010? If so, you had an option to split the income and report half on your 2011 tax return and half on your 2012 tax returns. If you elected to do so, it's time to make that first payment.
7. If you use a tax preparer, choose carefully. New regulations require paid tax preparers to have a Preparer Tax Identification Number. Before hiring someone to do your taxes, make sure he or she has one.
When hiring a preparer:
* Ask about fees in advance, since costs often rise as the filing deadline draws closer.
* Always review your return before signing it. Never sign a blank return for a preparer to fill in later.
* Avoid refund anticipation loans. The interest rates are typically sky-high.