Tax Tips for Your 2012 Return

If Hurricane Sandy or a similar catastrophe blew your roof away, you may qualify to deduct some losses that weren't covered by insurance. There are limits, though. First, you must reduce your losses by $100. After that, your deduction is limited to the amount of your losses that exceeds 10% of your adjusted gross income. For more information on writing off casualty losses, see IRS Publication 547.

Lower the costs of raising a family. The Department of Agriculture estimates that a middle-income family will spend more than $234,000 to raise a child born in 2011 to age 18. With that in mind, you don't want to overlook any family-friendly tax breaks, particularly when it comes to the cost of child care.

If you pay child-care expenses, you may be eligible to claim the child-care credit to offset some of those costs. To qualify, you must pay someone to watch one or more children younger than 13 while you work or look for a job. The maximum credit is $3,000 for one child and $6,000 for two or more.

If you contributed to a flexible spending account for dependent-care expenses at your job, be careful: You can't claim the credit for the same expenses covered by the flex account, says John W. Roth, federal tax analyst for CCH. However, suppose you pay for child care for two or more children and maxed out on the $5,000 the law allows you to stash in a child-care flex account each year. In that case, you can use the dependent-care credit to cover up to an additional $1,000 you paid for care. You'll shave at least $200 from your tax bill.

Parents who adopt children are eligible to claim a tax credit worth up to $12,650 per child in 2012. Unlike in 2010 and 2011, the credit is nonrefundable, Roth says, which means you won't receive a refund if the credit exceeds your tax liability. You can carry forward unused credits, however, and apply them against future tax bills.

Taxpayers who claim this credit can't e-file; they must file a paper return and include Form 8839 with the return. Because this credit is so large, it's likely to attract extra scrutiny from the IRS, so keep good records to substantiate your attorney's fees, travel costs and other eligible expenses. The new tax law made this credit permanent, so if you were unable to finalize your adoption by December 31, you'll still have the ability to claim it for this year.

Manage your IRA. Another tax break that was revived allows people 70½ or older to make tax-free transfers of up to $100,000 from their IRAs to charity. However, because the tax bill was signed January 1, some seniors probably missed the opportunity to take advantage of this break in 2012.

If you contributed money from your IRA directly to charity last year in hopes that this provision would pass, you can count it as a tax-free transfer. But if you withdrew cash from your IRA in December to meet your required minimum distribution, you're out of luck. Acknowledging its failure to extend the rule before the end of 2012, Congress said that December withdrawals could be treated as tax-free transfers if the money was shifted to a charity by the end of January. It's too late now.

The good news is that the provision was extended through 2013, so if you're still charitably inclined, you'll have another chance to make a tax-free transfer this year.

Don't forget about your Roth conversion. In 2010, taxpayers had a one-time opportunity to postpone the tax bill on a Roth conversion. The first half was due with your 2011 return; the second half is due when you file your 2012 tax return. Don't expect the IRS or your IRA provider to remind you of this obligation, although your tax software or tax preparer should send up a flare. Dig out Form 8606, which you should have used to report the conversion in 2010, to figure out how much income you'll need to include on your 2012 return. And if you made another conversion in 2012, you'll have to include that, too. The chance to defer taxes on Roth conversions was a one-time deal.

Grab last-minute deductions. If you qualify, there's still time to lower your 2012 taxes by putting money in a deductible IRA. You have until April 15 to stash up to $5,000 in your IRA for 2012; anyone 50 or older at the end of 2012 can squirrel away up to $6,000. If you're in the 25% tax bracket, a $5,000 contribution will save you $1,250 on your 2012 tax bill. But if you have a retirement plan at work, the right to make deductible contributions begins to phase out at $58,000 for single taxpayers and $92,000 on a joint tax return.