CHICAGO, IL--(Marketwired - January 14, 2014) - With 2013 in the rear-view mirror there's no better time to review your activities -- and associated expenses -- to learn how to lower your tax bill. The Illinois CPA Society has gathered a few often forgotten tax breaks and tax credits that the IRS has set in place for you to recoup some of your 2013 disbursements.
The millions of unemployed Americans who were looking for a job in the same line of work in 2013 can deduct job-hunting costs as miscellaneous expenses, if itemized. Qualifying expenses can be written off even if a new job wasn't obtained. Expenses can be deducted only to the extent that one's total miscellaneous expenses exceed 2% of the person's adjusted gross income.
Student-Loan Interest Paid by Parents
When parents pay a child's student loans the IRS recognizes the money as given to the child, who then paid the debt. Therefore, a child who is not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by his or her parents.
Choose the Correct Standard Deduction
The standard deduction taken is based on your filing status, but there are multiple factors to consider when filing, such as age or physical impairments that can make a difference. Persons age 65 or older, as well as individuals who are blind, for example, can take a higher deduction.
State Income Tax vs. State Sales Tax Deduction
Taxpayers who itemize deductions are allowed to deduct the state and local sales taxes they paid during the year. Taxpayers must choose between a deduction for state and local sales taxes and one for state and local income taxes. People living in a state with no income taxes should look into deducting the state and local sales taxes. People who live in a state that has an income tax should add their 2013 receipts to see if the sales taxes paid are higher than their state and local income taxes for the year. However, taking the sales tax deduction where Alternative Minimum Tax (AMT) is present may not change the total tax due (typically it will reduce the AMT and increase the regular tax by a like amount). Every taxpayer is responsible for paying the higher of the regular tax or the AMT.
The Value of Tax Credits
Deductions lower taxable income, but tax credits are even more valuable because they directly reduce the amount of tax paid.
Earned Income Tax Credit (EITC)lowers the overall tax bill for low- and moderate- income working families. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.
Child Tax Credit allows individuals who pay for day care expenses for their children or disabled adult dependents to receive a tax credit of up to 35% percent of the cost of day care.
American Opportunity Tax Credit helps pay for college expenses. The full credit of $2,500 is available to qualifying individuals, whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit can be claimed for expenses for the first four years of post-secondary education.
Lifetime Learning Credits helps families cover education costs-up to $2,000 for the student's qualified expenses. There is no limit on the number of years the lifetime learning credit can be claimed for each student. Note that the American Opportunity Credit and Lifetime Learning Credit cannot be used for that same child in the same year.
Retirement Savings Contributions Credit (Saver's Credit) makes it easier for lower-income families to save money for retirement. The amount of the credit is 50%, 20% or 10% of a retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly). Income limits are $29,500 (single), $44,250 (head of household) or $59,000 (married filing jointly).
Your Local CPA Can Help
Each taxpayer's situation is unique and there are many possible deductions, credits and other tax-saving opportunities. CPAs can help make sense of your taxes and ensure that you're paying the right amount. Use the free "Find a CPA" Directory on the Illinois CPA Society's site, www.icpas.org, to locate a CPA in your area.
About the Illinois CPA Society
The Illinois CPA Society, founded in 1903, is the fourth largest state CPA Society in the nation, with more than 23,000 members. It is the premier professional organization that represents CPAs in Illinois. For more than a century the Society has advanced the highest ethical and financial standards of the profession, and remains a leader in educating the public on financial issues.
For more details about these tax breaks and tax credits, as well as information on other tax breaks and credits, I would be happy to arrange an interview with a CPA. With W-2s arriving in January and the madness of tax-filing season upon us now's a great time to learn more about what tax strategy is best and CPA is uniquely qualified to guide tax payers through their unique set of circumstances. To arrange an interview with a CPA, please feel free to contact me at the following:
- Personal Finance - Career & Education
- Investing Education
- tax credits
- Income Tax