Another year has nearly passed, and it’s time to make sure your have your tax ducks in a row.
It’s important to make sure you know about the key changes made to the tax code before you make your end-of-year moves.
The slogan for this month might just be “use it or lose it.” That’s because there are several tax breaks that are set to expire as 2014 dawns. Whoever your clients are — teachers, students, small-business owners and big spenders to name a few — make sure they take advantage before it’s too late.
“The days of relying on Congress to automatically renew expiring tax provisions … might finally be coming to a close as the strain on the federal budget becomes more evident with each new round of budget negotiations,” wrote William H. Byrnes and Robert Bloink on ThinkAdvisor.
(Not all tax news is bad. The IRS recently gave high-income taxpayers a break with the release of the final regulations governing the new 3.8 percent tax on net investment income.)
Flip though the following pages to help your clients make the most of their personal and business deductions.
1. Charity begins at home
The days of an easy way for seniors to make a tax-free charitable donation are ending. This provision allows those 70½ and older to make direct, nontaxable rollovers from IRAs to charities. It is way to keep income low by classifying mandatory withdrawals as donations instead of income.
2. Small business, big break
Small businesses that use tax provisions to depreciate assets will see a big change in the ability to do so in 2014. This year, business owners can accelerate their depreciable assets up to $500,000 on a $2 million purchase. The maximum depreciation is set to drop to $25,000 next year. If a small business client has the taxable income to offset the deduction, it might be a good move to use the provision when paying 2013 taxes.
3. Forgiving mortgage debt
Say goodbye to the Mortgage Debt Forgiveness Act of 2007. Under that law, if debt owed on property was reduced through a loan reduction or a short sale, the amount forgiven was not treated as taxable income as had been the practice in the past. The law is set to expire at the end of the year. Experts say the tax is unfair because the money only existed on paper.
4. Students (and parents) beware
After this year, there will no longer be a deduction of up to $4,000 for qualified tuition costs. The tax break was generally available to families with less than $160,000 in income and singles making half as much or less. Payments for the spring semester must be made by the end of 2013 to qualify.