Mike is the founder of the firm of Michael DiSabatino, CPA. He produces this blog to keep his clients and friends informed of new tax laws, tax saving strategies, as well as, business tips.
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It's been coming for three years, but now the day of tax reckoning for higher-income investors has finally arrived.
Caution: For the first time, you may have to pay the 3.8% Medicare surtax on "net investment income" (Nii) on your 2013 tax return. The tax is computed on Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts.
What's your alternative minimum tax (AMT) preference?
Though you might prefer to not think about the AMT, certain income and deductions, known as preference items, affect the way the tax will apply to you. Those amounts, along with others called "adjustments," are added to or subtracted from the income shown on your tax return to arrive at your AMT taxable income.
Are you a parent? Give yourself some credit – a child-related tax credit, that is. Here are two that can reduce your 2013 federal income tax liability.
The rules for filing 2013 tax returns are straightforward for most people. Marital status, age, and income level are generally the determining factors. Here's a quick overview of the income levels at which a 2013 return is required.
Fire, flood, tornado. Violent weather can wreak emotional and financial havoc. If your home, vehicle, or other personal property is damaged or destroyed by a sudden, unexpected casualty, an itemized tax deduction may help ease the financial burden.
IRS Identity Theft Season Begins Now
Each year thieves try to steal billions in Federal Withholdings by stealing your identity. As the IRS focuses more attention on this quickly growing problem, now is the time of year to be extra vigilant.
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Check the tax rules before lending money to relatives
There are many worthwhile reasons to lend money to a relative. For example, you may want to help a child or sibling continue their education or start their own business.
But lending money to relatives can have tax consequences.
As you review your filing requirements for 2013, make sure you don't overlook the so-called "nanny tax." If you have a household employee, you could be liable to pay state and federal payroll taxes.
First, you must determine whether you have a household employee. Generally, this is someone you hire to work in or around your house. It could be a babysitter, nurse, maid, housekeeper, or gardener. It doesn't matter whether they work part-time or full-time, or whether you pay them hourly, weekly, or by the job.
Early this year, review the amount of income tax you're having withheld from your wages to see if it should be adjusted. While you must meet minimum tax payment requirements, don't overwithhold or you'll be giving the IRS interest-free use of your money for a year. Don't underwithhold either, or you face penalty and interest charges on the underpayment.
Your children may need to file a 2013 income tax return. A return is needed if wages exceeded $6,100, the child had self-employment income over $400, or investment income exceeded $1,000. If the child had both wages and investment income, other thresholds apply. Contact us for more information or filing assistance.
Flexible spending accounts (FSAs) allow taxpayers to set aside pre-tax dollars to pay for out-of-pocket medical expenses. The drawback has been the fact that unused amounts each year are forfeited. Plans could provide a 2½ month grace period to use up unspent set-asides.
Now a change announced by the IRS adds more flexibility to these accounts. Plans can be modified by employers to allow up to $500 of unused amounts to be carried over into the following year. Health FSAs cannot have both the old 2½ month grace period and the $500 carryover; they can have one or the other (or neither).
Nearly every company, large or small, has to file Form 1099-MISC with the IRS and send a copy to recipients by January 31, 2014.
You use Form 1099-MISC to report miscellaneous payments to non-employees. This includes fees for services paid to independent contractors, such as consultants, lawyers, cleaning services, and others. Generally, you don't report fees paid to corporations, but there are exceptions (payments to lawyers, for example).
Reminder! If you have a rental property and pay a contractor, such as a landscaper or pool cleaner... they are now required to be issued a 1099 or your deduction may be jeopardized.
For details or filing assistance, contact our office.
Do you want to simplify your tax return, yet still claim a deduction for your home office? Beginning in tax year 2013 (returns that we will file in 2014), taxpayers may use a simplified option when figuring the deduction for business use of their home.
Get 'extra credit' for your kids in college
The price tag on a college diploma keeps going up, but at least you might be able to salvage some tax benefits if you're paying the tab.
An Example: If your child is attending college this fall, you may have a chance to claim an enhanced tax break for higher education expenses.
Even if you have never before qualified for a home office deduction, you may be able to now. Starting a few years ago, the IRS began to apply more liberal rules, allowing more people to qualify for the write-off. Specifically, the old, hard-to-meet “principal place of business” standard was made much more taxpayer-friendly. But there are other scenarios that allow you to claim deductions as well.
Can a Self-Emplyed person, who is still working full-time skip thier Pension/IRA RMD (Required Minimum Distribution)?
No. Generally, you must begin taking "required minimum distributions" (RMDs) from your qualified retirement plans and IRAs after you turn age 70 1/2. Then you must continue taking RMDs for each succeeding tax year.
However, you can delay RMDs from qualified plans if you're still working full time and you don't own 5% or more of the company. There is no such exception for IRAs. Because your Simplified Employee Pension (SEP) is treated as an IRA rather than a qualified plan, you must start taking RMDs after you turn 701/2 whether you are still working or not.
So, remeber: In any event, full-time workers can't postpone RMDs from an IRA.
“Our teams have been working hard throughout the fall to prepare for the upcoming tax season. The late January opening gives us enough time to get things right with our programming, testing and systems validation..."
-IRS Acting Commissioner Danny Werfel