Karin Price Mueller/The Star-Ledger writes: When you say goodbye to 2013, you'll also say goodbye to some valuable tax breaks -- unless Congress makes a last-minute move to extend them.
"Some of these tax breaks will be renewed or it will be a political nightmare," said Gail Rosen, a Martinsville-based certified public accountant.
Rosen said odds are some of these expiring tax breaks will be revived later rather than sooner.
"Washington does not appear to be taking action anytime soon and in fact it wouldn’t be surprising if nothing occurs until the end of 2014," she said. "Changes to the current tax plan means winners and losers and I believe that Washington does not want to have losers right now."
Indeed, Congress has until the end of 2014 to extend these provisions, said Clare Wherley, a certified financial planner and certified public accountant with Lassus Wherley in New Providence.
"It would not surprise me to see no action until the mid-term elections are over," Wherley said. "And then, it will depend on who has the most votes."
Several members of Congress have spoken publicly about extending some of the tax breaks, but pinning down exactly when that might happen is as easy as pinning down the confetti that falls on New Year's Eve.
Also, because of the October government shutdown, the IRS announced last week that it's delaying the start of the 2013 filing season until Jan. 31, 2014.
Just in case there's no action, you may want to move on these tax breaks before the year is over -- or expect a higher tax bill.
For college families: A valuable deduction of up to $4,000 for tuition and fees will expire on Dec. 31. To take advantage of this one now, you must pay some of your 2014 costs this calendar year. Depending on what other education-related deductions you qualify for, it would be smart to talk to your tax preparer so you use the deductions and credits that will give you the biggest savings. "How quickly one can complete college is something that the expiring above-the-line deduction might impact," Wherley said.
Energy-efficient home improvements: When the ball drops next Tuesday night, homeowners will have lost their chance to get a credit of up to $500 for energy-efficient home improvements in 2013. This includes items such as windows, doors and more. Not everyone can cash in on the tax break. If you received credits totaling $500 in past years, you're out of luck. "I would install something before year end if I didn’t use the energy credit before and energy efficient improvements are needed for my home," Rosen said. For a full listing of improvements and your eligibility, check the EnergyStar web site.
For commuters: Ciao to larger write-offs for bus and train commuters. In 2013, commuters were permitted to use $2,940 per year, or $245 a month, tax-free for commuting expenses. That benefit will be cut almost in half -- to $1,560 a year or $130 per month -- after Jan. 1.
For charitable retirees: Retirees who like giving their IRA withdrawals to charityare in for a tax hike. Those over age 70 1/2 were able to make charitable donations of up to $100,000 straight from their IRAs, which excluded the distributions from the retiree's income. The retiree can't take the donation as a deduction, but the benefit of lower taxable income has been well worth it for many. But no more. In 2014, retirees will have to take the money first -- before it goes to charity -- so the funds will be counted as income, and yes, taxed.
For charitable retirees: Retirees who like giving their IRA withdrawals to charityare in for a tax hike. Those over age 70 1/2 were able to make charitable donations of up to $100,000 straight from their IRAs, which excluded the distributions from the retiree's income. The retiree can't take the donation as a deduction, but the benefit of lower taxable income has been well worth it for many. But no more. In 2014, retirees will have to take the money first -- before it goes to charity -- so the funds will be counted as income, and yes, taxed.
For teachers: Teachers are known to pay out-of-pocket for supplies when their schools aren't forking over the dough, and the government gave educators a special deduction for these expenses. Even if teachers didn't itemize their tax returns, they could deduct up to $250 of classroom supplies, but that goes away Jan. 1. Teachers can buy more stuff between now and the end of the year to take advantage of this vanishing deduction.
For homeowners: When the year ends, homeowners will no longer be able to deduct their mortgage insurance premiums as "residence interest." The IRS defines residence interest as "as interest paid or accrued during the taxable year on acquisition indebtedness with respect to any qualified residence of the taxpayer. The determination of whether any property is a qualified residence of the taxpayer is made as of the time the interest is accrued."
For troubled homeowners: Since 2007, homeowners who negotiated with their lenders for any debt forgiveness, such as mortgage modifications or forgiven debt from short sales, were permitted to exclude the forgiven amount from their taxable income. No longer. Come 2014, any forgiven home debt will be added to your taxable income. "The forgiveness of debt provision could be a major hit," Wherley said. "In cases where a loss of job has contributed to the loss of a home – and then to get hit with a big tax bill. That’s tough."
For troubled homeowners: Since 2007, homeowners who negotiated with their lenders for any debt forgiveness, such as mortgage modifications or forgiven debt from short sales, were permitted to exclude the forgiven amount from their taxable income. No longer. Come 2014, any forgiven home debt will be added to your taxable income. "The forgiveness of debt provision could be a major hit," Wherley said. "In cases where a loss of job has contributed to the loss of a home – and then to get hit with a big tax bill. That’s tough."
Not for New Jerseyans anyway: Taxpayers in states without an income tax -- like Florida -- had a choice. They could deduct their state and general sales taxes instead of taking an income tax deduction. That ends when 2013 does, so if you spend your time in New Jersey but your residence is Florida or another state without an income tax, make your large purchases before the year ends so you can claim the deduction before it expires.
Not disappearing, but a big change: There's a big change coming for medical deductions in 2014. Previously, you could deduct medical expenses if they exceeded 7.5 percent of your income. In 2014, that threshold rises to 10 percent, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. New Jersey will still allow medical deductions if they exceed 2 percent of your income. Taxpayers may want to hit the doctor before 2014 to get in all the costs they can with the lower 2013 threshold.
Other changes to note:
• The temporary lower 4.3 percent Social Security tax will be hiked back to 6.2 percent.
• Married couples who earn more than $450,000, heads of household who bring in more than $425,000 and singles who earn more than $400,000 will see a higher top tax rate of 39.6 percent.
• Singles who earn more than $200,000 and those married filing jointly who earn more than $250,000 will pay more. "The big surprise in 2014 will be the 3.8 percent Medicare surtax on unearned income and the 0.9 percent Medicare surtax on earned income,” Kiely said.
• The temporary lower 4.3 percent Social Security tax will be hiked back to 6.2 percent.
• Married couples who earn more than $450,000, heads of household who bring in more than $425,000 and singles who earn more than $400,000 will see a higher top tax rate of 39.6 percent.
• Singles who earn more than $200,000 and those married filing jointly who earn more than $250,000 will pay more. "The big surprise in 2014 will be the 3.8 percent Medicare surtax on unearned income and the 0.9 percent Medicare surtax on earned income,” Kiely said.
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