New laws, misunderstanding old laws create tax teturn angst
H&R Block explains understanding impact of personal changes key to filing accurate 2013 tax return
Most of the 750 regulatory changes made to the tax code in 2013 didn’t make headlines, but that doesn’t mean taxpayers won’t notice a change when they file their tax returns.
For tax season 2014, taxpayers need to know about new tax laws, commonly overlooked tax breaks and how health care could impact their taxes.
Not claiming commonly overlooked tax breaks and picking wrong filing status are frequent causes of overpaying taxes
As a frequently overlooked tax credit, 1 in 5 of those eligible is not claiming the Earned Income Tax Credit. Low-income workers may be eligible for this credit (maximum credit of $487 to $6,044) based on the number of children they have and if their income is below specific requirements. Because eligibility isn’t static – financial, marital and parental changes can cause a taxpayer to be ineligible one year and eligible the next – many taxpayers may not realize when they qualify.
Higher education tax breaks can help parents manage college costs, but these are frequently overlooked:
- The American Opportunity Credit was extended through 2017, allowing taxpayers to claim up to $2,500 for the first four years of college education for each student.
- The tuition and fees deduction (expired Dec. 31, 2013, but can be claimed on 2013 returns) provides a reduction in taxable income of up to $4,000 per tax return.
- The Lifetime Learning Credit is worth up to $2,000 per return for post-secondary degree programs or courses taken to acquire or improve job skills.
Also, selecting the wrong filing status can impact the value of some tax credits and deductions. Changes in marital status can cause taxpayers to wonder what status they should use to file; generally, marital status on Dec. 31 of the tax year determines filing status.
Health care and taxes intersect as a result of the Affordable Care Act
Now, due to the Affordable Care Act, almost everyone must have health insurance or face potential tax penalties next year. H&R Block’s helpth.com (help getting health insurance) aids consumers in understanding the implications of the Affordable Care Act on a more personal level. The website offers many helpful tools, including:
- Tax and Health Care Review
- Answers to frequently asked questions
- A step-by-step guide to the enrollment process
- Personalized tax calculators and support for tax credit applications
- Live assistance from experienced enrollment experts.
For more information about filing tax returns now or for tax tips all year long, visit www.hrblock.com or call 800-HRBLOCK.
There has been an average of more than one tax code change a day for the past decade.
Following are some changes that went into effect in 2013:
- Only medical expenses that exceed 10 percent of adjusted gross income (7.5 percent for taxpayers 65 or older) may be deducted.
- A special safe harbor deduction allows taxpayers to take a home office deduction of up to $1,500, depending on the square footage of the office, without the need to save receipts to calculate relevant home expenses.
- The additional Medicare tax is applied to earned income (including self-employment income) and increases the Medicare tax paid by 0.9 percent for compensation that exceeds $250,000 for those married filing jointly ($200,000 single and $125,000 MFS).
- The new net investment income tax is applied to capital gains from the sale of stock, dividends and investments. Taxpayers with net investment income whose filing status is married filing jointly with modified adjusted gross income exceeding $250,000 ($200,000 single and $125,000 MFS) could be subject to the tax.
Also, many popular tax breaks impacting students, teachers and homeowners expired Dec. 31, but can still be claimed on 2013 tax returns. These tax breaks include the tuition and fees deduction, the $250 educator expense deduction, debt forgiveness for some foreclosures, and being able to deduct state and local sales tax instead of state income tax.