My Thoughts: Having the IRS look closely at you is not something you are likely to enjoy. But the good news is there are fewer agents than before and unless your “mistake” is grievous, you are likely to be overlooked. But you can’t count on it. With computer technology advancing by the minute, it will most likely be a software program that finds your “mistake”.
So its best to undestand the rules as much as possible, get good advice from someone who knows and understands the rules, and then do what they say.
By Bonnie Lee | Taxpertise | Published November 29, 2013 | FOXBusiness
Our country’s tax code is long and complex and is regularly getting changed by lawmakers, making it hard to keep up with all the updates.
This year’s major tax law changes occurred early on with the president signing into law the American Taxpayers Relief Act of 2012 on Jan.2. The rest of the changes to the tax code this year were enactments of new laws passed in prior years and from the Affordable Care Act.
Here’s a look at the tax law changes that take effect this year, and how they may impact your return:
1. The Child Tax Credit of a maximum of $1,000 per child under age 17 is now permanent. If your income is greater than $110,000 (married filing joint), $75,000 (single, head of household or qualifying widow(er) or $55,000 (married filing separately) the amount of the credit you can take will be limited.
The part of the Child Tax Credit that is refundable will expire in 2017. For example: you have one child and a tax liability of $300. Currently, you would receive $300 to zero out your tax liability then a refund of $700, the remainder. Beginning in 2017, you will not enjoy the $700 refund.
2. Energy credits for improvements such as insulated hot water heaters, insulation, double-paned windows, etc. expire after 2013. If you are considering improvements in these areas, be sure to install them before year end. The items that qualify for this special tax treatment will be marked by the manufacturer. Be sure to keep this documentation in your tax file in the event of an audit.
3. Tax-free charitable distributions directly from an IRA to a qualified nonprofit organization by persons age 70 ½ or older continues through 2013. The maximum you may contribute is $100,000. This is handy for seniors who have paid off their homes and no longer itemize deductions.
You cannot take a charitable deduction unless you itemize. To take advantage of this tax benefit, the IRA manager makes the allocated donation from the IRA distribution and only reports to the IRS the amount of the distribution received by the recipient. For example, you normally take $12,000 per year in IRA distributions–this amount would be 100% taxable income. However, let’s say you decide you want to donate $1,000 to charity. You ask your plan manager to make the donation from your IRA account and supply you with the remainder, $11,000 for the year. You will pay taxes on only $11,000. The donation will come off the top.
4.The Supreme Court handed down a decision that affects same sex legally married couples. The IRS now recognizes this marital status, so same-sex couples can now file their tax return as married filing joint rather than as two single individuals.
5.Education credits, specifically The American Opportunity Credit, will be allowed through 2017. And the existing provisions for Coverdell Education Savings Accounts are now permanent. However, the tuition deduction expires after 2013.
6.The student loan interest deduction is now deemed permanent.
7. Employer-provided education assistance benefits are now permanent
8. The dependent care credit as it stands at its current levels and calculations are permanent.
9. The Earned Income Tax Credit, a refundable tax credit for low to moderate income workers, is set to expire in 2017.However, I expect that it will be renewed.
10. The estate tax exemption for 2013 is set at $5,250,000 with a top tax rate of 40%. If your estate is valued at less than this amount, and you die by Dec. 31, no estate tax return needs to be filed and there will be no estate tax levied.