TAX SEASON WILL BE HERE BEFORE YOU KNOW IT CHECK OUT THESE TAX BREAKS

Posted: December 1, 2013 in life, Uncategorized
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1.Employer-paid health insurance premiums and other medical expenses (including long-term care) are deducted as a business expense by employers, but they are not included in employee gross income.
2.The mortgage interest deduction is limited to interest on debt no greater than the owner’s basis in the residence, and is also limited to interest on debt of no more than $1 million. Interest on up to $100,000 of other debt secured by a lien on a principal or second residence is also deductible.
3.Capital gains on assets held at the owner’s death are not subject to capital gains tax under current law. The cost basis of the appreciated assets is adjusted to the market value at the owner’s date of death.
4.Individual taxpayers can make tax-preferred contributions to certain types of employer-provided 401(k) plans (and 401(k)-type plans, like 403(b) plans and the Federal Government’s Thrift Savings Plan). The tax on contributions and the investment income earned by 401(k)-type plans is deferred until withdrawn.
5.Homeowners, of course, don’t have to pay themselves rent. But there is still an implied rental income benefit of ownership, and it normally would be considered taxable income. The current law allows an exclusion from taxable income for the implicit gross rental income on housing services.
6.Taxpayers who itemize their deductions may claim a deduction for state and local income taxes (or at the taxpayer’s election, state and local sales taxes) and property taxes, even though these taxes primarily pay for services that, if purchased directly by taxpayers, would not be deductible.
7.Certain employer contributions to pension plans are excluded from an employee’s gross income even though the employer can deduct the contributions. In addition, the tax on the investment income earned by pension plans is deferred until the money is withdrawn.
8.State sales taxes
 
This is an especially dangerous issue for 2012 returns because, throughout 2012, this tax deduction simply didn’t exist. The right for taxpayers to deduct state sales taxes paid expired at the end of 2011. Everyone expected Congress to revive the tax break sometime during 2012, but the issue got tangled up in fiscal cliff negotiations. Finally, in the bill approved January 1, 2013, the deduction was restored … retroactively for 2012 and for 2013 returns that will be filed next year.
This is particularly important to you if you live in a state that does not impose a state income tax. You see, Congress offers you the choice between deducting state income taxes paid or state sales taxes paid. You choose whichever gives you the largest deduction, of course, and if your state doesn’t have an income tax, the sales tax write-off is clearly the way to go.
In some cases, even filers who pay state income taxes can come out ahead with the sales tax choice.
The IRS has tables that show how much residents of various states can deduct, based on their income and state and local sales tax rates. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you may add the sales tax you paid on that big-ticket item to the amount shown in the IRS table for your state.
The same goes for any homebuilding materials you purchased. These add-on items are easy to overlook, but could make the sales-tax deduction a better deal even if you live in a state with an income tax. The IRS has a calculator on its Web site to help you figure the deduction.
 
9.Reinvested dividends
 
This isn’t really a tax deduction, but it is an important subtraction that can save you a bundle. And this is the break that former IRS commissioner Fred Goldberg told Kiplinger’s that a lot of taxpayers miss.
If, like most investors, your mutual fund dividends are automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis results in double taxation of the dividends — once when they were paid out and immediately reinvested in more shares and later when they’re included in the proceeds of the sale. Don’t make that costly mistake.
If you’re not sure what your basis is, ask the fund for help. (Starting with sales in 2012, mutual funds must report to investors — and the IRS — the tax basis of shares redeemed during the year. But note this: The new rule applies only to shares purchased in 2012 and later years. If you redeemed shares you purchased prior to 2012, it’s still up to you to figure your basis. Don’t forget those reinvested dividends!)

Out-of-pocket charitable contributions
 
It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub).
But the little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for your school’s fundraising mailing count as a charitable contribution. Keep your receipts and if your contribution totals more than $250, you’ll need an acknowledgement from the charity documenting the support you provided. If you drove your car for charity in 2012, remember to deduct 14 cents per mile plus parking and tolls paid in your philanthropic journeys.
 
Student-loan interest paid by Mom and Dad
 
Generally, you can only deduct mortgage or student-loan interest if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the money as if it was given to the child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad. And he or she doesn’t have to itemize to use this money-saver. Mom and Dad can’t claim the interest deduction even though they actually foot the bill since they are not liable for the debt.
 
Job-hunting costs
 
If you’re among the millions of unemployed Americans who were looking for a job in 2012, we hope you kept track of your job-search expenses … or can reconstruct them. If you’re looking for a position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Qualifying expenses can be written off even if you didn’t land a new job. In any case, such expenses can be deducted only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. Job-hunting expenses incurred while looking for your first job don’t qualify. Deductible job-search costs include, but aren’t limited to:
— Transportation expenses incurred as part of the job search, including 55.5 cents a mile for driving your own car plus parking and tolls — Food and lodging expenses if your search takes you away from home overnight — Cab fares — Employment agency fees — Costs of printing resumes, business cards, postage, and advertising
 
The cost of moving for your first job
 
Although job-hunting expenses are not deductible when looking for your first job, moving expenses to get to that job are. And you get this write-off even if you don’t itemize.
To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area. If you drove your own car on a 2012 move, deduct 23 cents a mile, plus what you paid for parking and tolls.
 
Military reservists’ travel expenses
 
Members of the National Guard or military reserve may tap a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills. For 2012 travel, the rate is 55.5 cents a mile, plus what you paid for parking fees and tolls.
 
Deduction of Medicare premiums for the self-employed
 
Folks who continue to run their own businesses after qualifying for Medicare can deduct the premiums they pay for Medicare Part B and Medicare Part D and the cost of supplemental Medicare (medigap) policies. This deduction is available whether or not you itemize and is not subject the 7.5% of AGI test that applies to itemized medical expenses. One caveat: You can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by your employer (if you have a job as well as your business) or your spouse’s employer if he or she has a job that offers family medical coverage.
 
Child-care credit
 
A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax. In the 25% bracket, each dollar of deductions is worth a quarter; each dollar of credits is worth a greenback.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account — which allows you to pay for the child care with pre-tax dollars — that might be an even better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only amounts paid for the care of children under age 13 count.)
You can’t double dip. Expenses paid through a plan can’t also be used to generate the tax credit. But get this: Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 for the care of two or more children can qualify for the credit. So, if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.
 
Estate tax on income in respect of a decedent
 
This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.
Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received. Let’s say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor’s estate added $35,000 to the estate-tax bill. You get to deduct that $35,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $17,500 itemized deduction on Schedule A. That would save you $4,900 in the 28% bracket.

Read more at http://www.kiplinger.com/article/taxes/T054-C000-S001-the-most-overlooked-tax-deductions.html#UxfhlQ28vKT3AQUp.99

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