Tax Credits to Reduce Your Taxes

A tax credit reduces the amount of tax you must pay. A refundable tax credit not only reduces the federal tax you owe, but also could result in a refund. Don’t lose out claiming these credits if you qualify.

1. The Earned Income Tax Credit is a refundable credit for people who work and don’t earn a lot of money. The maximum credit for 2012 returns is $5,891 for workers with three or more children. Eligibility is determined based on earnings, filing status and eligible children. Workers without children may be eligible for a smaller credit. If you worked and earned less than $50,270, use the EITC Assistant tool on IRS.gov to see if you qualify. For more information, see Publication 596, Earned Income Credit.

2. The Child and Dependent Care Credit is for expenses you paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent. The care must enable you to work or look for work. For more information, see Publication 503, Child and Dependent Care Expenses.

3. The Child Tax Credit may apply to you if you have a qualifying child under age 17. The credit may help reduce your federal income tax by up to $1,000 for each qualifying child you claim on your return. You may be required to file the new Schedule 8812, Child Tax Credit, with your tax return to claim the credit. See Publication 972, Child Tax Credit, for more information.

4. The Retirement Savings Contributions Credit (Saver’s Credit) helps low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or a retirement plan at work. The credit is in addition to any other tax savings that apply to retirement plans. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).

5. The American Opportunity Tax Credit helps offset some of the costs that you pay for higher education. The AOTC applies to the first four years of post-secondary education. The maximum credit is $2,500 per eligible student. Forty percent of the credit, up to $1,000, is refundable. You must file Form 8863, Education Credits, to claim it if you qualify. For more information, see Publication 970, Tax Benefits for Education.

Make sure you qualify before claiming any tax credit. You can always visit IRS.gov to learn about the rules. The free IRS publications mentioned are also available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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Savvy Senior Alert – IRA Distribution Deadline April 1st

 

Attention Savvy Seniors: Those of you that turned 70 1/2 last year have until April 1, 2013 to take your first mandatory IRA Distribution. For more details, read Kiplinger‘s article “Don’t Miss the IRA Required Distribution Deadline” by Kimberly Lankford. Stay savvy!

Changes for Federal Taxes in 2013

Brief Highlights:

Tax Rates: Singles with taxable income of $400,000, couples with $450,000 and heads of household with $425,000 - rates increase to 39.6% from 35%

Standard Deductions: Couples – $12,200; if one is age 65 or older – $13,400; if both are age 65 or older – $14,600. Singles - $6,100; if age 65 – $7,600. Heads of Household – $8,950 plus $1,500 if age 65. Blind- $1,200 more ($1,500 if unmarried and not a surviving spouse).

Capital Gains tax raised to 20% for singles with taxable income over $400,000 and couples over $450,000. The Medicare surtax can boost the rate to 23.8%.

Estate taxes have $5,250,000 exemption with increased tax rate to 40%. The annual gift tax exclusion is $14,000 per donee.

Payroll Tax for social security withheld increases 2% up to the wage base limit for 2013 of $113,700. Self-employed individuals will need to increase their estimated tax payments accordingly.

Itemized Deductions Phaseouts for individuals with AGI over $250,000, couples over $300,000 and $275,000 for heads of household will be reduced by 3% of the excess of AGI over the thresholds. The total reduction will not exceed 80% of itemizations. Itemized deductions exempt from this reduction are medical expenses, investment interest, casualty losses and allowed gambling losses.

Personal Exemption increase to $3,900 with phaseout of 2% for each $2,500 of AGI over the same thresholds for itemized deduction phaseout.

AMT permanently indexed for inflation. AMT exemption for 2013 for couples increased to $80,750 and $51,900 for singles and heads of household.

Medicare Surtax of .9% applies to total earnings over $200,000 for singles and heads of household; couples over $250,000; married filing separately over $125,000. Surtax applies to wages and self-employment income. Employers do not owe the additional surtax on the employer portion of medicare tax.

Medicare Surtax on net investment income of 3.8% for singles and heads of household with MAGI over $200,000; couples over $250,000; married filing separately over $125,000. (MAGI – Modified Adjusted Gross Income is adjusted gross income plus tax free foreign earned income.) This tax is owed on the smaller of the net investment income or the excess of MAGI over the dollar threshold.

Social Security benefits increase 1.7% for a cost of living adjustment (half of the increase paid in 2012).

Social Security Earnings Limits increase: Individuals who turn 66 this year do not lose any benefits if they make $40,080 or less a year before they reach age 66. People at least age 62 but not age 66 by the end of 2013 can make up to $15,120 before they lose social security benefits. No earnings cap for anyone once they turn age 66.

Medical Expense Deductions: The threshold for deducting medical expenses as an itemized deduction increases to 10% of AGI for singles under the age of 65. The same applies to couples filing jointly unless one is age 65 or older; if so, their cap remains at 7.5% of AGI.

Medicare Part B premium increase to $104.90 per month. Part B and D premiums can rise to $297.40/month for seniors with MAGI in 2011 exceeding $170,000 for couples or $85,000 for singles.

Foreign Income Exclusion: US taxpayers working abroad have a larger income exclusion at $97,600.

Tax Breaks Restored for 2013:

Income tax exclusion of up to $2 million of forgiven home mortgage debt

Deduct state and local sales tax in lieu of state income taxes

Deduction for teacher’s class supplies

Private Mortgage Insurance Deduction

Taxpayers age 70 1/2 and older are allowed to directly transfer up to $100,000 tax free from their IRAs to charity. IRA payouts received by IRA owners in December 2012 can qualify for this tax treatment if transmitted to the charity before February 1, 2013. IRA owners can make direct transfers in January 2013 to qualify for 2012 charitable donations.

Standard Mileage Rate Allowance for business miles is 56.5 cents per mile. Medical and job related move mileage increases to 24 cents per mile.

 There are many more details included in the changes but this gives you brief highlights of the major changes.

Tax Planning is crucial for all taxpayers to insure your 2013 tax payments through withholding and estimated tax payments are sufficient. Each tax situation is unique to each individual and must be reviewed separately.

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• House Passes Senate Budget Bill Convincingly: We Have A Tax Deal! (forbes.com)
• TurboTax – What is Adjusted Gross Income (AGI)? (turbotax.intuit.com)
• What the “fiscal cliff” bill means to taxpayers (cbsnews.com)
• As 2013 Begins, Get Ready For An ObamaCare Tax Onslaught (forbes.com)

Check Your List – Year End Tax Tips

Time is running out for taking steps to save taxes for 2012. Here is a great line up of information for your tax saving checklist for 2012.

Trim Taxes by Boosting Retirement Savings – Kiplinger.

Year-End Tips to Trim Your 2012 Tax Tab (dailyfinance.com)

Year-end tax-saving tips (bankrate.com)

• 8 Small Business Tax-Saving Tips for 2012 (intuit.com)

Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims

Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims.

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Social Security Increase for 2013

The Social Security Administration announced a 1.7 percent cost-of-living adjustment increase on benefits for 2013. The wage base limit for the maximum amount of earnings subject to social security taxes will increase from $110,100 to $113,700.

To calculate your increase, multiply your current monthly social security benefit by 1.7 percent. This equals the amount of increase you will see on your monthly benefit payment in 2013.

Related articles

• Social Security benefits to go up by 1.7 percent (bostonherald.com)

2013 Pension Plan and Retirement Changes

The IRS announced today cost of living adjustments for dollar limitations for pension plans and retirement related items for 2013. Highlights for the most common plans include:

Elective deferrals for 401(k), 403(b), most 457 plans and the Federal Thrift Savings Plan is increased to $17,500. Catch-up contributions for age 50 and over remain unchanged at $5,500.

Traditional IRA contribution deductions for those covered by an employer retirement plan are phased out for singles and heads of household with modified adjusted gross income between $59,000 and $69,000; married couples filing jointly income phase out range is $95,000 to $115,000; Contributors not covered by an employer retirement plan and married to someone who is, has a phase out based on the couple’s income between $178,000 and $188,000.

Contributions to a Roth IRA has a phase out range for married couples of $178,000 to $188,000; singles and heads of household income phase out range is $112,000 to $127,000.

The Saver’s credit for low and moderate income workers AGI limit is $59,000 for married couples, $44,250 for heads of household and $29,500 for singles or married filing separately.

The limitation on the annual benefit under a defined benefit plan is increased to $205,000.

The limitation for defined contribution plans is increased to $51,000.

The limitation regarding SIMPLE retirement accounts is increased to $12,000.

For the complete announcement covering all retirement plan changes, visit IRS.gov for Newswire release IR-2012-77.

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• IRS raises 401(k) contribution limit to $17,500 (money.cnn.com)

Great State Guide to Taxes for Savvy Seniors

Savvy Seniors will want to check out the link to Kiplinger‘s state guide on taxes for retirees. They offer information on which states they consider to be the most tax friendly for seniors. It includes a tax map for you to click on any state to get comprehensive details on how seniors are taxed for income, property and sales tax, including available exemptions or discounts. Great source of information in choosing where to spend your golden years and how to stretch your fixed income.

State-by-State Guide to Taxes on Retirees.

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Welcoming Teachers and Administrators to the New School Year!

At Holt Accounting & Tax Professionals, we appreciate Teachers and School Administrators for their dedication to the educational profession, in their service to our community, and in making a difference in the lives of our children. We value your commitment and recognize the many challenges you face.

We want to offer you some important tips to help you save your hard earned money.

• The educator expense above the line tax deduction expires the end of 2011. In 2012, save your receipts for education expenses you pay personally. You may be eligible to deduct these expenses if you itemize.
•  Save for your retirement with the Teacher’s 403(b) retirement plan contributions. Contributions reduce your federal and state taxable income so you pay less tax now.
•  Donations to the school can be a charitable donation when you itemize your deductions.
• Track mileage for job related travel to deduct the business mileage on your itemized deductions.
• Professional fees and dues can be deducted when you itemize.
• If you have continuing education expenses, you may be eligible under the lifetimelearning credit to deduct up to $2,000.
• Tax planning during the year will help ensure you take all allowable tax deductions, minimize your taxes and maximize the cash in YOUR pocket. Tax planning provides savings opportunity options that are otherwise missed. Don’t miss out! Start your tax planning today!

Have a great school year!

Tax Hike Agenda Snapshot

Tax Hike Agenda Snapshot

As it stands now, with the Supreme Court ruling upholding the health reform and the unknown election results, we are facing hikes in taxes. Here is a quick snapshot of where we are headed as a result of the health reform.

Tax Increases Effective 2013

Singles earning more than $200,000 and couples earning over $250,000 will pay a 9% Medicare surtax.

Deducting medical expenses for those under age 65 will now be subject to a 10% AGI floor.

Flex spending accounts will be capped at $2,500 for the year.

Unearned income will be subject to a 3.8% Medicare surtax for singles with Modified AGI over $200,000 and couples over $250,000.

The Federal subsidized part of drug plan costs for retirees will be nondeductible for employers.

A 2.3% excise tax on medical devices goes into effect in 2013.

Tax Increases Effective 2014

Uninsured individuals will owe at least $95 in tax as a penalty, with a cap at $285 for families. The tax rises the next 2 years with the top tax at $2,085 in 2016. Those with lower or middle incomes will get an income tax credit to help pay for insurance coverage.

Employers with 50 or more full time employees that do not provide adequate health care will owe an excise tax if one of their employees get the income tax credit. The cost of the tax is $2,000 for every employee above 30 workers. If any employee buys coverage through an exchange, the tax rises to $3,000.

What does all this mean? This is just a snapshot and does not provide all the complicated details but the bottom line is…less deductions and more taxes.