Often Overlooked Tax Breaks
Friday, November 2nd, 2012 | Uncategorized | No Comments
The goal of many taxpayers is to pay the IRS as little as possible; therefore, it is imperative to take advantage of every tax deduction, adjustment, or credit available. Here are a few that often get overlooked that could help you save taxes.
Job hunting expenses – While costs of hunting for a new job are not available to college students, already-employed workers are. Costs incurred looking for a new job in your present occupation, including mileage, travel, resume preparation services, employment of outplacement agencies, and phone calls, are among those that are deductible. They are deducted as miscellaneous itemized expenses, which are subject to a 2% of your adjusted gross income reduction.
Child and dependent care credit – While most taxpayers pay for child and dependent care while mom and dad work, the costs of child care costs incurred during the summer are overlooked. The tax break also can include summer day camp costs. The cost of overnight camps does not qualify.
Charitable tax deductions – Generally most taxpayers deduct their monetary contributions, but often overlook expenses incurred while doing charitable work. While the value of our time is not allowed, we can deduct the cost of supplies and materials, travel (14 cents per mile), uniforms, and related cleaning expenses. Of course the key is maintaining the appropriate receipts and mileage records.
Medical costs – Taxpayers who itemize their deductions see them reduced by 7.5% of their adjusted gross income. (Scheduled to increase to 10% for taxpayers under 65.) Some often overlooked medical deductions include travel expenses to and from medical care, trips to the drug store, qualified medical supplies and equipment, and lodging associated with medical care (maximum of $50 per night). Self-employed taxpayers who employ their spouse can deduct 100% of health insurance premiums against their business income.
The tax laws have eliminated or reduced many of the tax deductions and credits, so it is important to identify and claim as many deductions and credits as you can qualify for.
Tennessee Inheritance and Gift Tax Update – Good News for Taxpayers
On May 21, 2012, the governor signed bills phasing out the Tennessee inheritance tax by 2016 and repealing the Tennessee gift tax as of January 1, 2012. The Tennessee inheritance tax exemption increases from its current level of $1,000,000 to $1,250,000 in 2013, to $2,000,000 in 2014, to $5,000,000 in 2015, and disappears completely in 2016.
The Tennessee gift tax was retroactively repealed for gifts made back to January 1, 2012. This change does not absolve any taxpayer of the gift tax liability for any tax duly imposed during any tax year that began prior to January 1, 2012. Before the gift tax repeal, gifts in excess of $13,000 annually were subject to graduated rates from 5.5% to 16%.
The 2012 federal estate and gift tax exemption is currently at $5,120,000 ($10,240,000 for a married couple). It is scheduled to return to $1,000,000 in 2013 unless congress acts to adjust or extend the federal estate and gift tax exemptions.
There is a significant gift and estate planning opportunity for those who can take advantage of these changes. Used in conjunction with other tax saving strategies, taxpayers can minimize the potential 55% future federal estate tax impact. Taxpayers should review their current estate tax plans with the estate planning and financial advisors to ensure their current plans take advantage of these changes to ensure that any prior planning does not produce unanticipated consequences.
Look Out – Here Comes 2013
At this point many taxpayers are taking a wait and see attitude to see what will happen for 2013. A combination of events, including the soon to expire “Bush-era tax cuts,” the imposition of the new Medicare taxes on investment income and wages, the health care mandates, and the expiring “extenders,” create a great deal of uncertainty about how to plan for taxes in 2013 and beyond. Be sure and watch and see what Washington has in store. We will update you as things unfold.
The tax consultants at Warren and Tallent CPAs PLLC can assist you in understanding your current tax status and help you determine ways to take advantage of all the deductions, adjustments, and credits you are entitled to.
Warren and Tallent CPAs PLLC
www.wandtcpa.com
606C South Main Street in Sweetwater
(423) 337-5003
409 North College Street, Suite 2, in Madisonville
(423) 442-3890
