During December, you should evaluate whether you’ll save any taxes by postponing 2013 income or deductions into 2014 or by accelerating 2014 income or deductions into 2013.? While many factors should be evaluated prior to making your final decision, a few items to keep in mind are as follows:
- For 2013, a single person will itemize once allowable deductions exceed $6,100 and a married couple will itemize once allowable deductions exceed $12,200.
- A taxpayer is no longer subject to Social Security or self-employment taxes once wages and net self-employment earnings exceed and $113,700 in 2013 and $117,000 in 2014.
- Miscellaneous itemized deductions, such as unreimbursed employee business expenses, are only deductible to the extent they exceed 2% of adjusted gross income (AGI). Items paid with credit cards are deductible in the year charged.
- Medical and dental expenses are deductible to the extent they exceed 7.5% of AGI, and are deductible in the year paid.
If you need assistance in determining whether you should either postpone or accelerate your income or deductions, or whether you?ll be hit by the AMT, please give us a call.
It’s not too late to cut your 2013 tax bill.? Prior to Dec. 31st:
- ?Increase your 401(k) and 403(b) contributions if you haven’t been contributing at the maximum rate all year.? This year you can put away up to $17,500 ($23,000 if 50 or older) into your 401(k) or 403(b) plan.? If you?re self-employed, consider setting up a Solo 401(k) by 12/31.
- Take a look at your withholdings and instruct your employer to withhold additional taxes if you haven?t had enough taxes withheld during the year and might get hit with an underpayment penalty.
- Consider selling your non-retirement investments that have decreased in value since your capital losses can offset other capital gains realized during the year (including from your mutual funds), and then can be used to offset up to $3,000 of wages and other income.
- Send in your January 2014 mortgage payment early enough so it will be processed prior to 12/31/13.? By sending in your payment a few weeks early, you can deduct the interest portion of that payment a full year earlier.
- Clean out your closets and donate your clothing and household items to a charitable organization since “non-cash” contributions are deductible if you itemize.? Don?t forget to get a receipt. And make sure to make a list of the donated items, including each item?s condition since only donations of clothing and household items in “good condition or better” qualify for a deduction.
- For gifts of money, making your donation by credit card before December 31st allows you to deduct the donation on this year’s return, even if you don’t pay your credit card bill until 2014.? And you always have the option of donating appreciated investments to charities. You get to claim your donation based on the value of the assets donated, without paying any capital gains taxes on the appreciation.
- Pre-pay your projected state tax shortfall if you’ll be itemizing your deductions and won?t be subject to the alternative minimum tax.
- Pre-pay or pay off your medical bills if your total medical expenses exceed 7.5% of your income and you itemize.
A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.
In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.
Here are some tips from the IRS about this type of rental property.
? You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.
You may also be subject to paying Net Investment Income Tax on your rental income.
? If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.
Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
? If the property is ?used as a home,? your rental expense deduction is limited. This means your deduction for rental expenses can?t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
? If the property is ?used as a home? and you rent it out fewer than 15 days per year, you do not have to report the rental income.
For more details on this topic, check out IRS Publication 527. It is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
From IRS Tax Tips Newsletter:
Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year. Here are five tax tips the IRS wants you to know about travel while serving a charity.
1.?You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Select Check tool to see if the group is qualified.
2.?You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can?t deduct the value of your time or services.
3.?The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.
4.?You can deduct your travel expenses if your work is real and substantial throughout the trip. You can?t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.
5.?Deductible travel expenses may include:
- Air, rail and bus transportation
- Car expenses
- Lodging costs
- The cost of meals
- Taxi fares or other transportation costs between the airport or station and your hotel
To learn more see Publication 526, Charitable Contributions. The booklet is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
From IRS Tax Tips:
Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes.? Here are several tips from the IRS for newlyweds.
- It?s important that the names and Social Security?numbers that you put on your tax return match your Social Security Administration records. If you?ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at SSA.gov, by calling 800-772-1213 or by visiting your local SSA office.
- If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service?if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
- If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
- If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information.
- If you didn?t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return.? You?ll need to use Form 1040 with Schedule A, Itemized Deductions. You can?t use Form 1040A or 1040EZ when you itemize.
- If you are married as of Dec. 31, that?s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, ???? it?s beneficial to file jointly.
For more information about these topics, visit IRS.gov. You can also get IRS forms and publications at IRS.gov or by calling 800-TAX-FORM (800-829-3676).