Liberty Tax Service Professional Raymond D. Nations, E.A., presents sound advice for the upcoming tax season:
Due to the Affordable Care Act, there are some 20 new taxes that may affect you.
Therefore, if you are a high-earner (over $200K if single or head of household or qualifying widow, $250K if married filing jointly, and $125K if married filing separately), you may owe additional Medicare taxes on your 2013 income. The additional taxes would be .9% on your wages and self-employment income that exceeds the above limits.
If you have net investment income (NII), some or all of this income will be subject to a 3.8% tax when filing your 2013 return if your modified adjusted income exceeds the thresholds mentioned previously. With this in mind, if you are able to postpone receipt of wages or self-employment income, then do so until 2014.
Remember to report all of your tips that you did not already report to your employer.
Second, if you might qualify for Earned Income Tax Credit (EITC), and you have a dependent child, you should be ready to provide supporting documentation that you supported that child more than half the year. Such documents would include a letter from the child's school showing your home address and naming you as the parent; medical records showing you as the parent; a court document awarding custody to you, etc.
Third, make sure you make your IRA deduction prior to April 15, 2014, so that you'll get the deduction for 2013.
Fourth, if you are itemizing your deductions, you'll need to consider carefully how you pay your medical expenses this year as the threshold has increased this year. Prior to 2013, the threshold was 7.5%, but now it is 10%. That means that you'll only be able to deduct those medical expenses that exceed 10% of your Adjusted Gross Income (AGI). "Medical expenses" includes such things as prescriptions, medical insurance premiums, your medical co-pays, your trips to and from your doctor and hospital visits, etc. If you made modifications to your home on the advice of your doctor, some of those expenses may be deductible. You can claim medical expenses for yourself, your spouse, and anyone else you claim as a dependent on your return. Please check with our tax advisor for advice on your particular situation.
If you are paying a mortgage on your home, you might want to make one additional payment this year by December 31. This would mean you'd have an additional mortgage interest payment to deduct.
Charitable donations must be made by December 31. You can use your Required Minimum Distribution (RMD) to make a charitable contribution. Contact the custodian who holds your IRA/401K monies (generally this will be a bank, or brokerage) and ask them to do the paperwork on this. You'll need to get the Employer's Identification Number (EIN) from the charity and give that to your banker or broker. If this transaction is done by transferring from the institution to the church/non-profit, then you will not have to declare this money as income for 2013. Remember, you must not take the money out yourself and "touch" it - then, it would be income to you! (By the way, this tax benefit is slated to expire on 12/31/2013, so don't count on it continuing for 2014!)
You can "gift" shares of stock to the charity and take a deduction for it. If you have shares of stock that have gained in value, but you don't want to incur capital gains taxes, by gifting them to the charity, you can take a charitable deduction on the appreciated value of the stock! Is this a a great country or what, eh? Talk to your stock broker or broker-dealer about this.
If you'd like to receive an income stream from your charitable gift, you might consider a "charitable remainder trust". This will require some consultation with your attorney, so you'd better get going on this one!
You could set up your favorite charity as a beneficiary to your IRA. Now, you won't get a current year deduction for this, but your estate will benefit from this.
In all of the above, I suggest you consult with your tax advisor for your particular situation.
Of course, if you get a Christmas bonus, you can always give cash, too!
The above are just a few of the year-end considerations for taxpayers to review. You should not wait until December 31, however! Get cracking on these now, and get your documents in order, so your visit to your tax preparer after the first of the year, will be much more productive and beneficial for you!
Finally, in case you are not aware, the IRS is pushing back the filing date for all returns to the earliest being January 28 but it could be as late as February 4.