We're more than halfway through the year, and it's not too early to begin tax planning. Starting now gives you time to tweak your tax strategies for the year if you're off track.
Higher-income Americans should take special notice this year because of rule changes in the American Taxpayer Relief Act of 2012.
For one thing, the law raised the top income tax bracket from 35 percent to 39.6 percent. For some, the tax rate on long-term capital gains and dividends rose from 15 percent to 20 percent.
Both changes affect single taxpayers with taxable income over $400,000 and joint filers with income over $450,000.
The higher rates are already in effect, and affected taxpayers should be paying estimated taxes based on those rates, said Mark Luscombe, principal tax analyst at CCH Tax & Accounting North America.
CREDIT FOR CHILD CARE: If you paid for child care this summer while the kids were out of school, those expenses may qualify for a tax credit.
The Child and Dependent Care Tax Credit is available not only while school's out for the summer, but also throughout the year. But you must meet certain conditions:
You must pay for care so you — and your spouse if filing jointly — can work or actively look for work. Your spouse meets this test during any month he or she is a full-time student, or is physically or mentally incapable of self-care.
You must have earned income, such as wages and self-employment. If you're married and filing jointly, your spouse must also have earned income. There's an exception to this rule for a spouse who is a full-time student or who is physically or mentally incapable of self-care.
You may qualify for the credit whether you pay for care at home, at a day care facility outside the home or at a day camp.
Expenses for overnight camps or summer school tutoring don't qualify. You can't include the cost of care provided by your spouse or a person you can claim as your dependent.
Be sure to keep your receipts and records to use when you file your tax return next year. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information to claim the credit.
INVESTMENT LOSSES: Look at any investments that have cost you money and consider selling them before the end of the year to offset investment profits. To parlay capital losses into tax savings, you have to sell your investment and take the loss.
If you incur losses from the sale of investments, you may subtract those losses from your capital gains, which are profits on the sale of investments.
If your capital losses exceed your capital gains, you can deduct only up to $3,000 of those losses in a tax year against ordinary income.
Any excess will be carried over until it can be offset against future capital gains or be deducted as a loss against ordinary income, with a limit of $3,000 a year.