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2014 CCH Whole Ball of Tax
Wait, I Can Deduct That? Wolters Kluwer, CCH Examines Common, New Tax Deductions for 2014
(RIVERWOODS, ILL., January 2014) – If there is a “fun part” when preparing tax returns, it’s the opportunity to list all deductible expenses throughout the year that may generate a refund. Deductions as well as tax credits can make a significant impact on tax returns, but many may not be aware of all the qualified deductions they’re entitled to take in order to offset what they owe.
Each year, taxpayers can look forward to some good news when preparing their returns – listing all their deductible expenses that may generate a refund. And, even with many commonly known tax deductions and credits, many may still be unaware of what they can list on Form 1040 to offset their income tax exposure. CCH, a part of Wolters Kluwer and a leading global provider of tax, accounting and audit information, software and services (CCHGroup.com), takes a look at new and current tax deductions and credits to benefit taxpayers.
“Some popular tax breaks, such as deductions on home mortgage interest, get a lot more attention in news headlines than others,” said Wolters Kluwer, CCH Senior Federal Tax Analyst John W. Roth, JD, LLM. “But taxpayers should know about additional tax breaks they can qualify for that don’t always get media attention.”
New Home Office Deduction
For those who are self-employed and work out of their homes, a new option is now available from the IRS for claiming a deduction for a home office. The new deduction, which was implemented in 2013, is based on the size of home office and is designed to be a simple calculation.
Here’s how it works: Eligible taxpayers can deduct $5 for every square foot of workspace used – up to a maximum of 300 square feet. So, if you use a den or spare bedroom at home as your home office and it measures 18 x 15 feet for a total of 270 square feet – multiply that by $5 for total home office tax deduction of $1,350. The new option saves time compared to the other home office tax deduction calculation of figuring related expenses and how they may apply over the course of the year to a home office. Either option may be used.
Sales – Income Tax Choice Phase Out
Also for 2014, taxpayers can no longer choose to take itemized deductions for state and local sales taxes instead of state and local income taxes. The provision had benefitted taxpayers living in states without an income tax or with low income tax rates.
Checklist of other tax deductions and credits not to miss:
___ Home Mortgage Interest Tax Deduction – It’s one of the more popular deductions available and allows most homeowners to write off the interest paid each month on a mortgage. Taxpayers can deduct mortgage interest paid on their primary home, as well as a second or vacation home as long as they have an ownership interest. Mortgage interest can also be deducted from a line of credit secured by the home or from a home equity loan. Also, mortgage insurance premiums for homes acquired after 2007 may be treated as acquisition interest and included in the deduction. (Provision expired at end of 2013, but available for current tax season filings.)
___ Charitable Donations – Taxpayers who donate money or non-cash property to qualified charities may be entitled to a tax deduction. While charitable gifts via cash or check may be easiest to track, a receipt or official acknowledgement of the donation from the charitable organization is required for tax reporting – documentation is required for the fair market value of non-cash items. Also:
- Travel expenses associated with charitable volunteer activities may also be tax deductible.
- Charitable donations may be limited based on a percentage of adjusted gross income (AGI) depending on the type of organization and property donated.
___ Medical, Dental Expense Deductions – Expenses related to diagnoses and treatment of medical and dental conditions may also come off your income taxes, depending on how much you paid out of pocket compared to how much you earned. The general rule is that qualified medical and dental costs that exceed ten percent of AGI may be deducted (7.5 percent for people age 65 or over). Typical expenses may include unreimbursed medical and dental bills, and the unreimbursed costs of equipment, supplies and devices prescribed by a physician or dentist for use in treating a condition.
___ Medicare Premium Deductions, Self-Employed – Business owners and self-employed taxpayers may deduct health insurance premiums. Those who are old enough to qualify for Medicare and are also business owners or self-employed may deduct premiums paid for Medicare Part B, Part D and supplemental Medicare policies to guard against health care coverage gaps. However, the deduction is not available for anyone who is already covered under their employer’s or spouse’s employer’s health plan.
___ Business Expense Tax Deductions – For sole proprietors, self-employed workers, contractors and others incurring qualified business expenses related to their occupation, income tax deductions are available. In most cases, eligible business expenses must both be ordinary, something common and acceptable in that particular business, as well as necessary, something appropriate and helpful to the business or trade. The IRS requires that business expenses should be separated from other expenses used to figure the cost of goods sold, capital expenses and personal expenses. Furthermore, business expense deductions can only be taken once, either on an individual’s income tax return or a separate business tax return – but not on both.
___ Health Coverage Tax Credit (HCTC) – The HCTC pays 72.5 percent of qualified health insurance premiums for individuals and families who are eligible for the credit. It is a federally funded program designed to make health coverage more affordable for the certain unemployed seeking jobs or training in a new vocation due to the effects of a trade treaty and for Pension Benefit Guarantee Corporation (PBGC) recipients and their families. The credit is available on a monthly basis to help offset health insurance premiums or on an annual basis for those claiming the credit on their income tax returns. (Provision expired at end of 2013, but available for current tax season filings.)
___ Child Tax Credit – New: The maximum child tax credit of $1,000 per child 17-years-old or younger is now permanent. However, the amount of the credit may be less, depending on income level.
___ Child and Dependent Care Credit – This credit may be claimed by eligible taxpayers who paid work-related expenses for the care of a qualifying individual in order for an eligible taxpayer to be able to work or look for employment. It is a percentage of the amount paid to a care provider and depends on a taxpayer’s AGI. A dependent child must be under 13-years-old when care was provided to qualify.
___ Adoption Credit – Newly adoptive parents are eligible to claim up to $12,970 per child for 2013 taxes (a $320 increase from 2012). The adoption credit was also made permanent in 2013 and it’s the largest nonrefundable tax credit available to individuals. Those claiming the credit on their income taxes must file Form 8839 and include an adoption order or decree with their return. Documentation of other qualified adoption expenses may also be required.
___ Earned Income Tax Credit – Known as the EITC, as well as the EIC, it is a refundable federal tax credit aimed at helping low and moderate income workers keep more of their paychecks. It was enacted in 1975 to offset Social Security taxes for those who qualify and as an incentive for more people to join the workforce. When the EITC exceeds the amount of taxes to be paid, it can then generate a tax refund for eligible taxpayers who claim the credit.
“Taxpayers who check with their tax preparers or take time to research all their options may find they qualify for more tax deductions and credits than they thought,” Roth added. “If you think there’s even a slight chance that you may or may not be eligible for a specific deduction or credit, it’s a good idea to consult with a tax and accounting professional who can add clarity and identify tax breaks you might not have known about.”
About CCH, a part of Wolters Kluwer
CCH, a part of Wolters Kluwer (CCHGroup.com) is a leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading solutions are The ProSystem fx® Suite, CCH Axcess™, CCH® IntelliConnect®, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.