Friday, December 27, 2013

What to know before filing your 2013 tax return / IRS offers some ways to reduce your tax bill and increase your refund

Mark Huffman for Consumer Affairs writes: If you plan to prepare your own federal income tax return, or even if you are paying someone to do it, it will be helpful to know about every possible tax break you are entitled to this year. To help, the Internal Revenue Service has just issued Publication 17, a comprehensive guide to tax preparation. 
The guide provides details on a wide range of features of the tax law that might enable you to trim your tax bill. For example, the American Opportunity Tax Credit (APTC) could provide a boost for parents and college students.

Education tax credit

The APTC provides a credit of up to $2,500 per eligible student. It's limited to families with a Modified Adjustable Gross Income (MAGI) of up to $180,000 or $90,000 for single taxpayers. It's available only if the student had not completed the first four years of postsecondary education before 2013.
It's available only for four tax years per eligible student, including any years the Hope credit was claimed. To be eligible, students must be pursuing a four-year degree or other recognized education credential. Also, the student must be enrolled at least half-time for at least one academic period that began during the tax year.
You may be able to claim this credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014.
For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit.

Child tax credit

The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your children who meet qualifications. The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit.
To qualify, a child must be a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them who was under the age of 17 at the end of 2013. They have to have lived with your for more than half of 2013 and provided no more than half of their own support. They also have to be a U.S. citizen, a U.S. national, or a resident of the United States.
Although a child may be your dependent, you may only claim a child tax credit or additional child tax credit for a dependent who is a citizen, national, or resident of the United States. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

Earned income tax credit

The Earned Income Tax Credit (EITC) is available to low income taxpayers. In fact, most recipients don't earn enough money to owe taxes. For 2013 the eligibility limits have been raised.
You may be able to take this credit if:
  • You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly),
  • You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly),
  • You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or
  • You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly).
Your adjusted gross income also must be less than the amount in the above list that applies to you.
Meanwhile, for higher income wage earners there is a new Medicare tax, outlined in Publication 17.
Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status.


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