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Federal tax breaks come and go, and this year is
no exception. Unless Congress takes action, 55
of them are set to expire on December 31, 2013.
Let's take a look at the ones that are most
likely to affect taxpayers like you.
1. Teachers' Deduction for Certain Expenses
Primary and secondary school teachers buying
school supplies out-of-pocket may be able to
take an above-the-line deduction of up to $250
for unreimbursed expenses. An above the line
deduction means that it can be taken before
calculating adjusted gross income.
2. State and Local Sales Taxes
Taxpayers that pay state and local sales tax can
deduct the amounts paid on their federal tax
returns (instead of state and local income
taxes)--as long as they itemize. In other words,
if you're thinking of buying a big ticket item
such as a boat or car and live in a state with
sales tax, you might want to think about buying
it this year.
3. Mortgage Insurance Premiums
Mortgage insurance premiums (PMI) are paid by
homeowners with less than 20% equity in their
homes. These premiums were deductible in tax
years 2012 and 2013; however, this tax break is
scheduled to end on December 31, 2013. Mortgage
interest deductions for taxpayers who itemize
are not affected.
4. Exclusion of Discharge of Principal
Residence Indebtedness
Typically, forgiven debt is considered taxable
income in the eyes of the IRS; however, this tax
provision, which expires at the end of this
year, allows homeowners whose homes have been
foreclosed on or subjected to short sale to
exclude up to $2 million of cancelled mortgage
debt. Also included are taxpayers seeking debt
modification on their home.
5. Distributions from IRAs for Charitable
Contributions
Taxpayers who are age 70 ½ or older can donate
up to $100,000 in distributions from their IRA
to charity. Some people do not want to take the
mandatory minimum distributions (which are
counted as income) upon reaching this age and
instead can contribute it to charity, using it
as a strategy to lower income enough to take
advantage of other tax provisions with phaseout
limits.
6. Mass Transit Fringe Benefits
In 2013, commuters using mass transit can
exclude from income up to $245 per month on
transit benefits paid by their employers such as
monthly rail or subway passes, making it on par
with parking benefits (also up to $245 pre-tax).
This provision is set to expire at the end of
the year, however and in 2014, pre-tax benefits
for mass transit commuters drop to a maximum of
$130 per month, while parking benefits remain
the same.
7. Energy Efficient Appliances
This tax break has been around for a while, but
if you're still thinking about making your home
more energy efficient, now is the time to take
advantage of this tax credit, which reduces your
taxes (as opposed to a deduction that reduces
your taxable income). The credit is 10% of the
cost of building materials for items such as
insulation, new water heaters, or a wood pellet
stove.
Note: This tax is cumulative, so if you've taken
the credit in any tax year since 2006, you will
not be able to take the full $500 tax credit
this year. If, for example, you took a credit of
$300 in 2011, the maximum credit you could take
this year is $200.
8. Electric Vehicles
Buy a four-wheel electric vehicle such as a Ford
Focus Electric (Model years 2012-2014), BMW i3
Sedan (Model year 2014), Fiat 500e (Model year
2013), and Nissan Leaf (Model years 2011-2013)
and take a tax credit of $7,500. Other vehicles,
such as a 2014 Accord Plug-In Hybrid and the
Toyota Prius Plug-in Electric Drive Vehicle
(Model years 2012-2014) are eligible for a
lesser tax credit. Call us for additional
information on tax credits for electric
vehicles.
Note: The credit begins to phase out for a
manufacturer's vehicles when at least 200,000
qualifying vehicles manufactured by that
manufacturer have been sold for use in the
United States.
9. Donation of Conservation Property
Also expiring this year is a tax provision that
allows taxpayers to donate property or easements
to a local land trust or other conservation
organization and receive a tax break in return.
10. Small Business Stock
If you've been thinking about investing in a
small business such as a start-up C-corporation,
consider doing it this year because this tax
provision expires on December 31. If you hold
onto this stock for five years, you can exclude
100% of the capital gains--in other words, you
won't be paying any capital gains. If you wait
until January, you will only be able to exclude
50% of the capital gains.
To learn more about whether you should be taking
advantage of these and other tax credits and
deduction set to expire at the end of 2013,
please give us a call today.
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