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2013 CCH Whole Ball of Tax
Common Tax Credits, Deductions Taxpayers Shouldn’t Forget, CCH Says
(RIVERWOODS, ILL., January 2013) – 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 Wolters Kluwer business and a leading global provider of tax, accounting and audit information, software and services (CCHGroup.com), takes a look at common tax deductions and credits for tax season.
“A lot of people get their information on different deductions and credits through increased media attention on the most popular tax breaks,” said CCH Senior Federal Tax Analyst John W. Roth, JD, LLM. “But taxpayers need to know that they may qualify for additional tax breaks that don’t always get the media spotlight.”
Some of the more common and broad-based tax credits and deductions include:
Home Mortgage Interest Tax Deduction – It’s one of the more popular deductions available and discussion of it possibly being limited or eliminated during “fiscal cliff” negotiations in Congress raised widespread concern among homeowners. The deduction 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.
Charitable Donations – People who give 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, you must obtain a contemporaneous acknowledgement of the donation from the charitable organization. It is up to the taxpayer to establish with documentation the fair market value of non-cash items. Travel expenses associated with charitable volunteer activities may also be tax deductible. Charitable donations, however, 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 7.5 percent of AGI may be deducted. 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 – 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 healthcare 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.
State Sales Tax Deductions – Taxpayers who itemize deductions on Form 1040, Schedule A, have a choice of deducting either their state and local income taxes paid or their state and local general sales taxes paid during the year – but not both. To claim sales taxes paid, taxpayers need to add up all the state and local general sales taxes from receipts saved during the year. For those who didn’t save receipts, they can still deduct sales taxes by referring to the general sales tax tables provided in the IRS Sales Tax Deduction Calculator. The tax tables show how much taxpayers may deduct, based on income levels and tax rates in each state.
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 affects 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.
Child and Dependent Care Credit – The 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 $12,650 per child for 2012 taxes (increases to $12,970 for 2013). The phase out range for 2012 is $189,710 to $229,710; for 2013, $194,580 to $234,580. It is 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 really do their homework may find they qualify for more tax deductions and credits than they previously knew about,” Roth added. “If you think there’s even a slight chance that you may or may not be eligible for a specific benefit, it’s a good idea to consult with a tax and accounting professional who can add clarity and identify other potential tax breaks.”
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading global provider of tax, accounting and audit information, software and services. Celebrating its 100th anniversary in 2013, CCH has served tax, accounting and business professionals since 1913. Among its market-leading solutions are the ProSystem fx® Suite, CCH Integrator™, 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.