Here’s what you can still do to take advantage of expiring tax breaks:
•The $250 above-the-line deduction for school teachers – no doubt, by now, you’ve already spent more than this for your classroom and students. In fact, you probably have excess costs which you will report as itemized deductions.
•In 2013, we have a $4,000 above-the-line deduction for certain education expenses.
•The deduction for state and local sales taxes was a boon for folks living in states without an income tax. It leveled the deduction playing field with residents of states with income taxes. With this benefit about to expire, this month is a good time to buy high-ticket items that you were going to buy anyway. Like what? Buy a new car, boat or big-screen television or monitor after the Christmas rush. You’ll get a good deal (especially on last year’s models or dealer’s loaners).
•The deduction for mortgage insurance is disappearing next year. There’s not much you can do about this, except to make the January payment in December. You’ll get one final bite at that apple.
•Seniors who face the required minimum distribution rules have benefited from a special deal which has been extended repeatedly for the last couple of years. You could draw up to $100,000 from your IRA account and donate the funds directly to your favorite charity. This draw would benefit you in several ways:
•You would not have to pay taxes on the amount withdrawn.
•It would qualify as your required minimum distribution (RMD) for the year – if the amount drawn was higher than the RMD.
•It would reduce the amount in your IRA so your heirs would face somewhat less in taxes upon your death.
•Folks who normally tithe to their preferred charities could use IRA monies to fund their tithes.
•The one drawback is, there is no charitable deduction for these donations.
•Suggestion for people who don’t have a specific charity to which you’d like to make a big donation: Set up a donor-advised fund to receive the money this year. Next year, you can determine the charity or charities of your choice.
Here are some expiring provisions that affect people in business:
•People who own restaurants, retail establishments, and non-residential buildings must generally depreciate leasehold improvements over 39 years. Lately, you’ve had the benefit or writing off the costs over 15 years. To keep this benefit for badly-needed improvements, get the work done before year-end and be sure to put the spaces into use by December 31st. One day delay by the construction folks – and your depreciation is cut by more than half.
•The work opportunity credit has not been renewed. This credit provided rebates to employers hiring veterans and certain groups of workers who have difficulty getting employed. The credit is worth 25% to 50% of the first and second year wages of qualifying employees (up to $9,600). There is still time to hire new workers before January 1, 2014. The trick is to get state approval for these new workers in time.
Moving on to other tax issues that will affect us this year and going forward…
The federal government has officially recognized same-sex marriages as a result of a landmark Supreme Court decision last June. While not all couples can benefit from filing a joint return, most will. Review your joint tax situations carefully. If being married can cut your taxes, get married before January 1, 2014 in order to file a joint return for 2013. Any time before midnight on New Year’s Eve is fine.
All high income couples beware: The coming year is bringing back the marriage penalty with a vengeance. New taxes will be hitting those individuals earning $200,000 or more. But when you’re married, the taxes hit couples with incomes of $250,000 or more (as opposed to twice the single income - $400,000).
Taxes that will affect you include the complicated Net Investment Income Tax of 3.8%. (At one tax workshop, the presenter devoted more than a half hour just defining what types of income are covered.)
There’s also the additional 0.9% Medicare tax. Some people are going to be very surprised when they prepare their tax 2013 returns. The employer is required to start withholding this tax from payroll as soon as the employee’s wages hit $200,000. If your spouse is earning over $50,000, but less than $200,000, this extra .9% won’t be deducted from their wages. So, you’ll find yourself having to pay this tax out of pocket next year.
It’s enough to make you want to break the bonds of marriage and just live in sin.
Some other tax planning tips:
There’s a higher threshold for deducting medical expenses this year – 10% of adjusted gross income. (It’s still 7.5% for those age 65 or over.) If you’ve already spent enough to exceed your target, look at the rest of your medical bills. Are there bills you can pay this year to generate a higher deduction? Remember, when you pay with a credit card, it’s considered paid on the date of the charge. Only do this with bills that will not be reimbursed by insurance or flexible spending accounts (FSAs).
Consumer Reports recently issued their survey on electric cars. Folks whose primary driving is local, or to places where you know you can get re-charged, these vehicles might be the ideal solution. Buy a plug-in vehicle before December 31, 2013 and you may still qualify for a credit of up to $7,500. Regardless of what a dealer may tell you, be sure to look up the car on the IRS website to see if it qualifies for the credit – and how much of a credit you can get.
One last thing, you know your annual donation of used clothing and personal items to charities? Well, if you refinanced your mortgage to a very low interest rate, it’s possible that you won’t have enough deductions to itemize this year. Give your personal items to a family or friend who could use the donation.
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