Income Tax Special Supplement to
The Crescent-News Thursday, January 30, 2014
Guide 2014
A Tax Preparation and Financial Planning Guide
PAGE 2 - Tax and Finance Edition, The Crescent-News, Thursday, January 30, 2014
Wealthiest people will now face 39.6 percent tax bracket WASHINGTON (AP) — A new top tax rate, higher Medicare taxes and the phaseout of deductions and exemptions could mean higher tax bills for wealthier Americans this year. Legally wed same-sex couples, meanwhile, may find the true meaning of the marriage penalty. All taxpayers will have a harder time taking medical deductions. In other changes for the 2013 tax year, the alternative minimum tax has been patched — permanently — to prevent more middleincome people from being drawn in, and there’s a simpler way to compute the home office deduction. Tax rate tables and the standard deduction have been adjusted for inflation, as has the maximum contribution to retirement accounts, including 401(k) plans and individual retirement accounts, or IRAs. The provisions were set by Congress last January as part of legislation to avert the so-called fiscal cliff of tax increases and spending cuts. “We finally got some certainty for this year,” said Greg Rosica, a contributing author to Ernst & Young’s “EY Tax Guide 2014.” Nevertheless, the filing season is being delayed because of the two-week partial government shutdown last October. The Internal Revenue Service says it needs the extra time to ensure that systems are in place and working. People will be able to start filing returns Jan. 31, a week and a half later than the original Jan. 21 date. “People who are used to filing early in order to get a quick refund are just going to have to wait,” said Barbara Weltman, a contributing editor to the tax guide “J.K. Lasser’s Your Income Tax 2014.” No change in the April 15
deadline, however. That’s ware makes a lot of those set by law and will remain complexities invisible to in place, the IRS said. most people. As a result, taxpayers might not realize they’re HiGHer-iNCOMe being helped by a wide TAXpAYerS The tax legislation passed array of deductions and at the start of 2013 perma- credits. “They have no idea nently extended the George of the benefits they are getW. Bush-era tax cuts for ting through the tax code,” most people but also added she said. a top marginal tax rate of STOCK SALeS 39.6 percent for those at One simplification: Many higher incomes — $400,000 for single filers, $450,000 for investors will find it easier married couples filing joint- to report stock sales if the ly and $425,000 for heads of 1099-B forms they receive contain key details of the household. On top of that, higher- sale and the correct basis for income taxpayers could see computing gains and losses. their itemized deductions and personal exemptions wHO’S FiLiNG phased out and pay higher The IRS processed more capital gains taxes — 20 than 147 million tax returns percent for some taxpayers. in 2013, down slightly from And there are new taxes the previous year. More for them to help pay for the than 109 million taxpayers new health care law. received refunds, which There are different income averaged $2,744, also slightthresholds for each of these ly less than in 2012. new taxes. The upward trend of An additional 0.9 percent electronic filing continued, Medicare tax, for exam- with more than 83 perple, kicks in on earnings cent of returns being filed over $250,000 for married online. The biggest jump, couples filing jointly and 4.6 percent, was among $200,000 for singles and people who used software heads of household. Same programs to do their own for an extra 3.8 percent tax taxes. on investment income. The IRS is continuing to But the phaseout of per- offer its Free File option, sonal exemptions and which is available to taxdeductions doesn’t begin payers with adjusted gross until $300,000 for married incomes of $58,000 or less. couples filing jointly and These taxpayers can use $250,000 for singles. brand-name software to file Taxpayers who didn’t their taxes at no cost. Some plan could find themselves states also participate. The with big tax bills come April agency also has an option 15 — and perhaps penalties for taxpayers of all incomes for under-withholding. — Free File Fillable Forms “It’s a snowball effect,” — which does basic calculasaid Dave Du Val, TaxAudit. tions but does not offer the com’s vice president of cus- guidance that a software tomer advocacy. package would. For the 2013 tax year, the personal exemption is CONFuSeD? “The complexities of the $3,900. The standard deductax code are only affect- tion is $12,200 for married ing those of us trying to taxpayers filing jointly, read it,” National Taxpayer $6,100 for singles and $8,950 Advocate Nina Olson said OVerView, Page 7 in an interview. Tax soft- •
AP Photo
Edith Windsor is interviewed in this file photo from 2012 at the offices of the New York Civil Liberties Union in New York. It was the Supreme Court's decision in Windsor's case that led to recognition of same-sex marriage.
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Tax and Finance Edition, The Crescent-News, Thursday, January 30, 2014 - PAGE 3
Taxpayer advocate: Avoid healthcare tax surprises WASHINGTON (AP) — It’s not too early to start thinking about the tax implications of healthcare reform. Did you buy health insurance through one of the exchanges? You might be eligible for a refundable tax credit. Taxpayers had the option of estimating their 2014 income to see if they qualified for the credit and then having it applied in advance to the cost of the premiums. “We have an opportunity in the 2014 filing season to educate taxpayers about what they need to do during the year to avoid problems during the 2015 filing season,” national taxpayer advocate Nina Olson said. Her advice to those taxpayers: keep the exchanges advised if there are changes in your circumstances that could affect the subsidy. “It could increase if you have another child and you want to be able to get the benefit of that,” she said in a wide-ranging interview with Associated Press. “It could decrease if you have a significant pay increase, if your spouse gets a job, if a child is no longer covered on your plan.” As a result, some taxpayers could end up owing the U.S. Treasury money when
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they file their 2014 taxes won’t propose changes that are unrealistic. “But,” she next year. “It may mean that they said, “I’m not going to take would have a reduced as an answer, ‘Oh, this is refund, and many taxpay- too heavy of a lift.’” There are 74 taxpayer ers depend on their refunds for various things,” Olson advocates around the counsaid. “They’ve used them try — at least one in each for planning. They use them state — who work with her, AP Photo like savings, so that will be a she said. National taxpayer advocate Nina Olson poses with To qualify for taxpayer rude surprise for these taxtaxcode books at the Internal Revenue Service in payers. And we can avoid advocate assistance, you it by having them go into must show that you face a Washington. Olson says it's not too early to start thinkthe exchanges throughout significant hardship — that ing about the tax implications of health care reform. the IRS is causing you ecothe year.” But what about those nomic harm, that its systaxpayers who don’t get tems are not working or refunds — between 75 that your rights have been IF YOU’RE NOT AT YOUR LAST JOB, percent and 85 percent do, violated. “That gets you she said — or those whose through the door,” Olson refunds aren’t big enough said. SHOULDN’T BE EITHER. Ask her what challengto cover what is owed if the es taxpayers face and she subsidy is reduced? Leaving 401(k) behind 1 column x 6a inches 2 column x 6 inches emphatically, In that case, “the easiest answers mean leaving This year, evaluate whether youcould can benefit from: it with thing is you’ll have a refund “Getting assistance from no one to watch over it. the next year, and we’ll take the IRS, getting service from 1. Tax-advantaged investments. If appropriate, consider tax-free municipal bonds to provide federally tax-free it out of the refund the next the IRS.” We can explain your options, income.* In fiscal year 2013, she year,” Olson said. “It’s a and if you’d like to roll your debt on the books. It’s an said, nearly four out of 10 2. Tax-advantaged retirement accounts. Consider 401(k) over into an Edward assessed tax, and we can calls to the IRS did not get contributing to a traditional Individual Retirement Jones IRA,we can helpMAY you YOUR RETIREMENT collect it for 10 years and it’s through to a live person Account (IRA) or 401(k) to help lower your taxable do it with no taxes or penalincome. who could help. The averjust a computer offset.” NEVER BE THE SAME . ties. We’ll lookContribute out for you. While her job is to take age wait time was 17.5 min3. Tax-advantaged college savings accounts. on the Internal Revenue utes. The for sooner you visitorEdward or gift to a college savings plan your children To find out or about Getting IRS assistance is Service where necessary, grandchildren. Jones to open fund401(k) your particularly anNEVER issue,BEshe Olson said the agency’s role options that makes sense, IRA, the more time your YOUR RETIREMENT MAY THE SAME. *May be subject to state and local taxes and the alternative in verifying income for peo- said, when it comes to idencall today. minimum tax (AMT). money has for potential ple applying for the health- tity theft, which remains growth. By contributing Edward Jones, its employees and financial advisors are not estate the As important as it is to put your money to work, when you care subsidy has been a major issue, although planners and cannot provide tax or legal advice. You should consult full amount now ($3,000 for David L Memmer do it canhave reallythe matter. number of cases has working well. “They with a qualified tax specialist or legal advisor for professional advice on your situation. Financial 2004 andAdvisor $4,000 for 2005), lessened the time in which declined since the IRS put Thegive sooner visit Edward Jones toinopen or fund your 410 money 5th Street has the oppor“significant screens” they are able to the you Defiance, OH 43512 Call or visit today to learntunity more about these identify answer to the your exchange,” to grow even faster IRA, theplace. more When time your moneytheft has for potential 419-782-1118 investing strategies. occurs, Olson said, the IRS she said. for retirement. But there’s growth. By contributing the full amount now ($3,000 for But she said there needs needs to act more quickly no time to waste. www.edwardjones.com Member SIPC 2004 andand $4,000 forconsistently 2005), your to money and helphas vic-the opportunity to be more outreach Matt Schmenk, AAMS® Blake A Sizemore growto even tims.for retirement. You may even be eligible education does toneed be faster To see Advisor why it makes sense Financial Advisor Financial taxpayerBut hasthere’s already done about thetoAffordable make catch-up“The contributions. no time to410 waste. to save for retirement Fifth St 101 Clinton L. St Suite 1700 David Memmer, CFP Care Act. She called on the gone through an enormous with Edward Jones before Defiance, OH 43512 Defiance, OH 43512 Investment Representative amount of angst and huge IRS to make To its see website why it makes sense to save for retirement 419-782-1118 with April 15th, call me today. 419-782-1573 ... and wetoday. do more informative by offer410 Fifth StreetAllman, AAMS® Edward Jonesinconvenience before April 15th, call Heather Matt Schmenk, AAMS® Blake A Sizemore Name Financial ing more examples “so tax- not recognize that in our Financial Advisor Financial AdvisorIRDefiance, OH Advisor 43512 IRBus. Street Address payers can recognize 1018 Ralston Ave. 410 Heather Fifth St. R Allman, AAMS® 101 Clinton St. City/Townthem- customer service to them,” 419-782-1118 City, State, selves if you direct them to Olson said. Victims of idenSuiteZIP 104 Defiance, OH 43512 Suite 1700 IR800-441-0284 Financial Advisor IR Name, Phone 43512 SIPC 419-782-1118 IR43512 Phone Defiance, OH Member Defiance, OH tity theft typically speak a page,” she said. www.edwardjones.com www.edwardjones.com/estate 1018 Ralston Ave Suite 104 City/Town 419-782-2119 419-782-1573www.edwardjones.com to a different person each As for her ownIRrole, Olson Defiance, OH 43512 Name, Phone Member SIPC Member SIPC said she speaks for taxpay- time they call the IRS, she 419-782-2119 www.edwardjones.com Member sipc City/Town ers, interceding in individu- complained, and “have to Name, al disputes withIRthe IRSPhone and explain their situation over pushing for tax City/Town reform. She again.” IR Name, Phone said she understands the • Surprises, Page 7 agency’s constraints and
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PAGE 4 - Tax and Finance Edition, The Crescent-News, Thursday, January 30, 2014
Wide array of tax breaks expired at end of 2013 WASHINGTON (AP) — Consider yourself forewarned. If you didn’t take advantage of a wide array of tax credits and deductions last year, it looks like you’ll be out of luck in 2014. The Congressional Research Service says there are dozens of expiring “tax extenders.” Most — but not all — had been put in place or given new life as part of legislation passed by Congress at the end of 2012 to avert the fiscal cliff of automatic tax increases and spending cuts. While the Bush-era tax cuts were made permanent, a wide array of deductions and credits were given short lifespans. “The provisions that are scheduled to expire in 2013 are diverse in purpose, including provisions for individuals, businesses, the charitable sector, energy, community assistance, and disaster relief,” CRS said in a report to Congress. Think education, energy and state sales tax. Also, mortgage forgiveness and insurance, and a wide array of other tax breaks. “You’ve got all these regularly expiring provisions,” said Mark Luscombe, principal tax analyst for CCH. “Congress seems to always get around to renewing them at least retroactively,” he said. But there’s no guarantee. There are a variety of reasons why Congress passes temporary, rather than permanent, tax provisions. It gives lawmakers a chance to see how they work — and affect the overall budget, according to CRS. “Temporary tax provisions may be also used to provide relief during times of economic weakness or following a natural disaster,” CRS said. “Congress may also choose to enact temporary provisions for budgetary reasons.” Among the tax credits and deductions that expired
last Dec. 31 affecting individuals:
EDUCATION
— Students or their parents will no longer be able to take a maximum $4,000 deduction for tuition and required fees to attend an institution of higher education. In some cases, related expenses had included activity fees, books, supplies and equipment — but not room and board, transportation or sports, according to the Internal Revenue Service. Although the tuition and fees deduction expired, there will still be other education-related tax breaks available for students and their parents during the 2014 tax year, including a deduction for interest paid on student loans and the American Opportunity and lifetime learning credits. — Unless Congress acts, elementary, middle school and high school teachers will no longer be able to take a $250 deduction for school supplies paid out of pocket. According to CRS, this deduction has been on the books since 2002.
STATE AND LOCAL SALES TAX
Taxpayers had temporarily been given the choice of deducting state and local sales taxes instead of state and local income taxes. This had been particularly beneficial for taxpayers who lived in states like Florida, Nevada and Texas without an income tax, and for those who made a purchase significant in value. “Folks aren’t going to see it anymore,” said Craig Richards, managing partner and director of tax services at Fiduciary Trust.
HOUSING
In an attempt to help people who lost their homes during the housing crisis or who owed more on the home than its value, Congress had passed leg-
AP File Photo
In this October 2013 file photo, traffic slows in the late morning commute getting to the San Francisco-Oakland Bay Bridge toll plaza in Oakland, Calif. Many workers take advantage of employer programs that allow them to pay for certain commuting costs pretax — the
islation that allowed homeowners to exclude up to $2 million in mortgage forgiveness from taxable income. That tax break was not extended beyond 2013. Nina Olson, the national taxpayer advocate, said there’s an important exception — taxpayer insolvency. If the taxpayer is insolvent — defined on the taxpayer advocate’s website as “when a taxpayer’s total debt exceeds his or her total assets” — the mortgage writeoff would not be considered taxable income, she said. In another change affecting housing, Congress let the deduction for the cost of premiums for home mortgage insurance expire.
CHARITABLE GIVING
Taxpayers older than 701⁄2 no longer have the option of contributing to charities directly from their individual retirement accounts. This direct contribution allowed seniors to avoid having to • expired, Page 8
cost is deducted straight from income before any taxes are withheld. For the 2013 tax year, the amounts for parking and public transportation were were $245 per month. This year, the public transportation pretax benefit drops to $130 per month
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Children not necessary for earned income credit WASHINGTON (AP) — You might want to consider filing a tax return this year even if you don’t meet the required income levels. You could be eligible for the Earned Income Tax Credit, a refundable tax credit that will put money in your pocket even if you don’t owe any taxes. But to get it, you must file a tax return. Created by Congress in 1975 “to offset the burden of Social Security taxes and to provide an incentive to work,” the Internal Revenue Service says the premise of the EITC is simple: “to help you keep more of what you earned.” For the 2011 tax year, the most recent full year available, more than 27 million tax returns claimed nearly $62 billion in earned income tax credits. That’s up from 19.4 million returns for $30.4 billion in credits in 1997. The IRS says the effect has been to lift people out of poverty — 6.6 million people, half of them children, based on 2011 tax year returns. “EITC is one of the largest anti-poverty programs,” the IRS said. The tax legislation sets out a series of 15 rules that taxpayers have to meet to qualify for the tax credit. “You have to work, you have to have earnings and have your income below set limits,” said Barbara Weltman, a contributing editor to “J.K. Lasser’s Your Income Tax 2014.” Income limits range from $51,567 for a married couple filing jointly who have three or more children to $19,680 for a married couple with no children. You also have to fill out and submit a tax return, choosing married filing jointly, single or head of household for the filing status. Those who are married but file separately are not eligible. To qualify, you also need
a valid Social Security number. Investment income cannot be greater than $3,300, and you had to live in the United States for more than half of 2013. The tax credit is geared toward families — the more children, the greater the credit. For a family with three or more qualifying children, the maximum credit for tax year 2013 is $6,044. For families with no children, the maximum credit is $487. “When there’s kids around it’s certainly significant,” said Dave DuVal, TaxAudit.com’s vice president of consumer advocacy. Yet as many as 25 percent of taxpayers who might qualify don’t file for the credit, according to Du Val. The IRS puts the number at 20 percent. Sometimes it’s just a matter of people being unaware the credit exists, or assuming they won’t qualify. “There are different instances and different life events that might make people eligible for it,” said Craig Richards, director of tax services at Fiduciary Trust. Military personnel might qualify, as well as taxpayers who lost their job midyear and went on unemployment. Another example, Richards said, is someone who is now receiving disability payments and is younger than retirement age. “That can be construed to be earned income,” he said. “You can include that in the calculation.” There’s also the perception that EITC is a poor person’s tax credit. “They may think of themselves as a middle-class person and just had a bad year,” Weltman said. Richards said the complexity of filing for the credit also can be a deterrent. He said there’s a fourpage form, Form 8867, for paid preparers to fill out with attesting that someone
qualifies for the credit. Taxpayers doing their own return have to file a one-page form, Schedule EIC, to claim the credit. There are worksheets that go with the form, but those don’t have to be filed. Tax preparation software can help point out whether you are eligible, but you’ll still have to go through the qualifying questions. DuVal said people should take advantage of the credit if they qualify. “It’s not illegal. It’s not immoral.”
The IRS has worked to build awareness of the Earned Income Tax Credit. It has held special EITC awareness days and worked with employers and others. The agency has posted a YouTube video touting the benefits of the credit. “The Earned Income Tax Credit can be a boost to you and your family,” the IRS employee on the video says. “...You earned it, now file to claim it and get it.” • eitc, Page 8
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PAGE 6 - Tax and Finance Edition, The Crescent-News, Thursday, January 30, 2014
AP Photos
Accounting and tax preparation software is shown at an Office Depot store in downtown Los Angeles. Tax software programs generally will figure out whether you have to pay any
penalties, and include that in whatever money might be due. As a result, many people might not even be aware they're paying penalties.
H&R Block public accountant, John Lee, explains how to file the 2013 1040-ES IRS Estimated Tax forms at his H&R Block tax preparation office in the Echo Park district of Los Angeles. "The United States income tax is a pay-as-
you-go tax, which means that tax must be paid as you earn or receive you income during the year," the IRS said. "You can do this through withholding or by making estimated tax payments."
Don’t let penalties, interest add to your tax bill WASHINGTON (AP) — Paying taxes is hard enough. Don’t let the total payment due rise because of penalties and interest. “To me, one dollar out of my pocket is significant,” said Dave Duval, TaxAudit. com’s vice president of consumer advocacy. “It’s another tax, it’s another percent. It adds up.” There are penalties if you fail to file your tax return, or if you file it late. There are late payment penalties if you didn’t have enough withheld or didn’t pay enough in estimated taxes. “You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, file a frivolous tax submission, or fail to supply your SSN or individual taxpayer identification number,” the Internal Revenue Service said. “If you provide fraudulent information on your return, you may have to pay a civil
fraud penalty.” On top of that, there’s interest assessed on money that’s past due. “The United States income tax is a pay-as-yougo tax, which means that tax must be paid as you earn or receive your income during the year,” the IRS said. “You can either do this through withholding or by making estimated tax payments.” For many, “the challenge is not figuring out how much to pay but coming up with the cash to do it,” said Barbara Weltman, a contributing editor to “J.K. Lasser’s Your Taxes 2014.” The IRS has made it easy to get an extension to file taxes beyond the April 15 deadline. But that doesn’t mean you can delay paying whatever you may owe the U.S. Treasury. “You have to pay what you owe by April 15,” Weltman said. “You do want to pay as much of the tax as you can so you won’t be penalized
for a late payment penalty.” The late payment penalty is one-half of 1 percent of the unpaid tax per month. However, if the total of all your tax payments — withholding and any estimated tax payments, plus any other payments made before April 15 — is at least 90 percent of the total tax due, you generally won’t be assessed the penalty during the period of the extension. For future tax years, the IRS has a withholding calculator to help you figure out if you are having enough taken out of each paycheck to avoid penalties. It’s important to file your return even if you don’t have the money to pay the taxes due. The failure-tofile penalty is normally 5 percent for each month that a return is late, up to a maximum 25 percent. “The penalty is based on the tax not paid by the due date (without regard to extensions),” according to the IRS. For those who file on time
but didn’t have enough is variable, equal to the fedwithheld or didn’t pay suf- eral short-term rate plus 3 ficient estimated taxes, they percent. For all of 2013 and may be charged interest on • peNALTieS, Page 8 the underpayment. The rate
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overview From Page 2
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EDUCATION
Many credits and deductions were extended for 2013, including several for education. Among them: the American Opportunity Credit of up to $2,500 per student for tuition and fees and deductions for student loan interest and tuition-related expenses. Many of these are phased out at higher income levels. School teachers will still be able to deduct up to $250 in out-of-pocket expenses for books or other supplies.
MEDICAL EXPENSES
Taxpayers will still be able to deduct their medical expenses, but it will be more difficult for many to qualify. The threshold for deducting medical expenses now stands at 10 percent of adjusted gross income, up from 7.5 percent. There’s an exception, though, for those older than 65. For them, the old rate is grandfathered in until 2017.
HOME OFFICE DEDUCTION
Among the other changes for 2013, taxpayers who work at home will now have a simplified option for taking a home office deduction. “You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively,” the IRS said. But, if you sit at your kitchen table and check work email, it doesn’t qualify. “The regular and exclusive business use must be for the convenience of your employer and not just appropriate and helpful in your job,” according to the agency. The IRS said that for tax year 2011, the most recent year for which numbers are available, more than 3.3 million people claimed nearly $10 billion in home office deductions using Schedule C. The number does not include the home office deduction taken by farmers, which is taken on a different form. Most taxpayers claiming the deduction are self-employed, according to the IRS. Until this year, you had to figure actual expenses for a home office, according to Weltman. “Starting with 2013 returns, if you’re eligible for the deduction, you can take a standard deduction of $5 per square foot, up to 300 square feet,” she said. The maximum deduction using this method is $1,500. The IRS says people who take the simplified option will have to fill out one line on Schedule C, as opposed to a 43-line form. Weltman likened the simplified home office deduction to the IRS deduction for business use of your car. “You can do your actual costs or the IRS mileage
rates.” The standard mileage rate for business use of a car in 2013 is 56.5 cents a mile, up from 55.5 cents.
SAME-SEX MARRIAGE
Beginning this year, same-sex couples who are legally married will for the most part have to choose married filing jointly or married filing separately when doing their tax returns. This is true even if they live in a state that does not recognize gay marriage. Many of these couples will now find themselves hit by the so-called marriage penalty, especially if both spouses work. For example, with their incomes combined, they might hit the threshold for the extra Medicare taxes or the beginning of the phaseout of deductions and the standard exemption. However, when it comes to estate taxes, the federal recognition of same-sex marriage will help legally married gay and lesbian couples. That was the issue in the Supreme Court decision in the case of Edith Windsor, who had to pay estate taxes after her lesbian spouse died. In addition, health insurance purchased from an employer for a same-sex spouse can be paid pretax and excluded from income. “Like opposite-sex couples, gay and lesbian married couples can qualify to use the head-of-household status, when kids are involved, where the spouses are living apart,” the IRS said. Same-sex married couples also have the option of filing amended returns going back to 2010, using the married-filingjointly status. Rosica said couples will have to look at their individual circumstances to see whether that’s beneficial from a tax perspective. When it comes to filing state returns, same-sex married couples living in states that don’t recognize gay marriage most likely will have to file as singles. Since federal returns often are used as a starting point for state returns, that could force them to calculate their federal taxes twice, once for filing the federal return and once for figuring out their state taxes.
surprises From Page 3
She said the agency should assign each case to one person who can see it all the way through. As for electronic filing, Olson suggested that taxpayers look into the IRS’ Free File program, which allows people whose adjusted gross income is under $58,000 to file their taxes for free through the IRS site. For people whose income is higher, the IRS has Free Fillable Forms, which do the basic math but don’t walk you through filling out your returns. “I don’t think I should have to pay to file electronically with the IRS,” said Olson, who uses the Free Fillable Forms. “That’s my duty as a taxpayer, and
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ENERGY EFFICIENCY
If you made energy efficiency improvements to your home, such as installing new windows or a qualifying furnace or heat pump, you might be able to take an energy credit of 10 percent of the cost up to a lifetime maximum of $500. However, of that total, the IRS said, “only $200 can be for windows, $50 for any advanced main air circulating fan, $150 for any qualified natural gas, propane, or oil furnace or hot water boiler, and $300 for any item of energy-efficient building property.” There are additional credits for solar. However, the credit for plug-in electric vehicles has expired.
the IRS in the 21st century should make it available to me for free. It’s crazy.” She urged taxpayers to check out tax preparers carefully before hiring one, and not to fall for promises of huge refunds. In dealing with tax preparers, she offered these tips: — Get a copy of your return. “If the preparer then alters the return after you’ve signed off on it, that’s proof that it was a false return that was filed.” — Make sure the preparer’s name, registration number and address are on the return. — Check with the Better Business Bureau or state consumer affairs agency to see if there are any complaints against the preparation firm or preparer.
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eitc
From Page 5
There’s also an EITC assistant on the IRS website to help people determine whether they qualify and for how much. And it’s not just the federal credit. The IRS says 22 states, the District of Columbia, New York
City and Montgomery County, Md., also have earned income credits. “If you qualify to claim EITC on your federal income tax return, you also may be eligible for a similar credit on your state or local return,” the agency said. Because it is a refundable credit, EITC also is prone to fraud. In a report released in October, the Treasury Inspector General
for Tax Administration estimated that $110.8 billion to $132.6 billion in earned income tax credits was paid out erroneously over the past decade. It said the IRS has made little progress in reducing fraud in the program. In a response attached to the report, Beth Tucker, deputy IRS commissioner for operations support, said the agency is continu-
ing to take steps to try to reduce erroneous EITC payments. “The IRS continues to believe that the new regulation of tax return preparers will help drive increased EITC compliance, decrease fraud and reduce improper payments,” she said. The agency also has said that EITC claims are twice as likely to be audited.
penalties
bill. Nina Olson, the national taxpayer advocate, said her office did a study on whether assessing penalties affected future taxpayer behavior. “The answer is no, it didn’t,” she said. She questioned whether people were even aware they were paying penalties and could take action to prevent penalties in future tax years.
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the first quarter of 2014, the interest rate is 3 percent. However, you might be able to avoid the interest charges if your total payments for the year equal at least 90 percent of what your final payment will be, if you owe less than $1,000 or if the taxes you paid at least equaled your 2012 tax
AP File Photo
In this March, 2012 file photo, a Nissan Leaf tops off its battery in Central Point, Ore., at one of the charging stations along Interstate 5. If you didn't take advantage of a wide array of
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declare the amount withdrawn from the IRA as income — and pay taxes on it. “This is something that we’ve seen a lot of our clients utilize over the years,” Richards said. For many taxpayers, he said, the math worked out better than withdrawing the money, donating it and then taking a deduction for a charitable contribution. “You can’t get better than not have to recognize income even if you don’t get the deduction,” he said.
COMMUTING TO WORK
Many workers take advantage of employer programs that allow them to pay for certain commuting costs pretax — the
tax credits and deductions last year, it looks like you'll be out of luck in 2014. Tax credits for certain electronic cars continue into 2014.
cost is deducted straight from income before any taxes are withheld. For the 2013 tax year, the amounts for parking and public transportation were equal — $245 per month. But beginning this year, the public transportation pretax benefit drops to $130 per month.
ENERGY EFFICIENCY
For the past several years, taxpayers have been able to get a tax credit for
making their homes more energy efficient. But list that among the tax breaks that weren’t renewed for the 2014 tax year. In its most recent incarnation, the credit was a lifetime maximum of $500 for such things as insulation, more efficient heating, cooling and hot water systems, doors and windows. Tax credits for certain electric cars continue into 2014.
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