Tips for preparing your taxes

The tax deadline of April 15 stands firm, but the tax code itself is a moving target -- always changing and expanding. Most of us look at our tax year in the rearview mirror: What’s done is done. With filing season upon us, we’ll report our income and take whatever breaks we can. However, knowing a bit about the changes that will impact the preparation of our 2013 taxes can also help us better prepare for the rest of the 2014 tax year. Consult a tax professional to see if you qualify for any of the following deductions, exemptions or credits.

Medical deductions
In addition to mortgage interest and charitable deductions, unreimbursed medical expenses can offer a substantial break for many taxpayers. But the hurdle is getting higher and harder to clear. For 2013, if you are under the age of 65, only the amount of your medical and dental expenses that is more than 10% of your adjusted gross income may be deductible. That’s a jump from a threshold of 7.5% of adjusted gross income in 2012. Taxpayers over 65 get a bit of a break and may be able to claim expenses over 7.5% -- until 2017.

IRA charitable contributions
Taxpayers over 70½ who are subject to required minimum distributions in an IRA account had been able to contribute their RMD directly to a charity and avoid paying income tax on the distribution. This popular strategy for senior investors is no longer available as of December 31, 2013.

Inflation adjustments
Each year, the IRS reviews all exemptions, deductions and credits for possible increases due to inflation. For the 2013 filing year, personal and dependent exemptions increased to $3,900. The standard deduction increased to $12,200 for married taxpayers filing jointly, $8,950 for heads of household and $6,100 for singles and married taxpayers filing separately.

Your tax preparer or tax software will account for these increases, and of course they are noted on tax forms, but it’s worth keeping these amounts in mind for planning purposes each year. For the 2014 tax year, the personal exemption rises to $3,950. Meanwhile, the standard deduction rises to $12,400 for married couples filing jointly, $9,100 for heads of household and $6,200 for singles and married persons filing separate returns.

Tax breaks for this year, but not the next
One tax break that has expired in 2013 is the deduction for sales taxes in states that don’t have an income tax. You can take it for 2013, but so far it hasn’t been renewed for the 2014 tax year.

And teachers have had a $250 expense deduction for years – it’s going away, as well. It is another tax break that hasn’t been extended for 2014.

Many Americans miss this tax break 
The IRS estimates that fully 20% of Americans are eligible for the earned income tax credit (EITC), but fail to take advantage of it. Designed for individuals and families who earned $51,567 or less last year, the amount of the credit varies depending on income, family size and filing status.

The IRS has an online benefits assistant that can help taxpayers determine whether they qualify for the EITC. In the event you are eligible and file for the credit, you can actually earn a tax refund – even if you don’t owe any taxes or are not required to file a return. 
 
How to get help

Some local IRS offices offer face-to-face assistance, and live phone support is available, too. You will also find many online resources, including live chat and guided assistance, available at IRS.gov.

 

Hal M. Bundrick is a Certified Financial Planner™ and former financial advisor and senior investment specialist for Wall Street firms. He writes about personal finance and investing for NerdWallet.

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