When does a dependent have to file a return?
A dependent has to file a return if the dependent has:
1. Earned income only and the total is more than $6,100.
2. Unearned income only (i.e. income which is not compensation for services) and the total is more than $1,000.
3. Both earned and unearned income and the unearned income is more than $350 or the total income is more than $6,100.
Kiddie Tax
Children who have investment income greater than $2,000 may be subject to tax based on their parent's income. This tax has been expanded in a very complex manner to potentially apply to children under age 24 as of yearend. This extended version of the kiddie tax targets two groups who have attained age 18: 1) those who reach their 18th birthday during the year, and 2) those in full-time student status for at least five months of the year who attain their 19th through 23rd birthday during the tax year. There is a further test for those in the age 18-23 groups. The kiddie tax only applies if the earned income of the child (wages and self-employment income) does not exceed one-half of the child's support for the tax year. In calculating support, amounts covered by scholarships are not taken into account. The tax does not apply to a child who is married and files a joint return for the tax year.
Net Investment Income Tax
Beginning in 2013, an additional 3.8% Net Investment Income Tax (NIIT) will be assessed on taxpayers with a modified adjusted gross income (MAGI) exceeding $250,000 (for those married filing jointly or qualifying widow[er]); $125,000 (married filing separately); and $200,000 (head of household and single). The tax is 3.8% of the lesser of net investment income or the excess of MAGI over the threshold amount.
Additional .9% Medicare Tax
An individual is liable for additional Medicare tax if the individual's wages, compensation, or self-employment income (together with that of his or her spouse if filing a joint return) exceed the threshold amount for the individual's filing status. The threshold amounts are: $250,000 (married filing jointly), $125,000 {married filing separately), and $200,000 (head of household and single).
Personal Exemption
The exemption for 2013 is $3,900. For a parent to claim an exemption for a full-time student, who earns more than $3,900, the student must be under 24 years of age as of the close of the year. A full time student must attend school for at least parts of 5 calendar months.
Exemption phase out: The adjusted gross income thresholds where the personal exemption starts to be reduced are $300,000 {married filing jointly and qualifying widow[er]); $150,000 (married filing separately), $275,000 {head of household), and $250,000 {single).
Standard Deductions
Additional for elderly and/or blind
Single ................................ $6,100 ............................. $1,500
Head of Household .......... $8,950 ............................. $1,500
Married Filing Joint ......... $12,200 ............................. $1,200
Married Filing Separately .. $6,100 ............................. $1,200
If an individual can be claimed as a dependent on another taxpayer's return, the regular standard deduction is limited to $1,000 or the dependent's earned income plus $350 up to the regular standard deduction. If the individual is over 65 years of age and/or blind, the additional deduction will be added to the above.
Itemized Deductions
For 2013 and future years, higher income taxpayers are required to phase out up to 80% of certain itemized deductions. The phase out applies to taxpayers with AGI over a threshold amount: $300,000 (married filing jointly), $150,000 (married filing separately), $275,000 (head of household), or $250,000 (single). These threshold numbers are adjusted for inflation after 2013. Basically, deductions are reduced by 3% of the amount by which AGI exceeds the threshold. However, deductions for medical expenses, investment interest, casualty and theft losses, and gambling losses are not subject to the limitation.
Standard Mileage Itemized Deduction Rates
The standard mileage rate allowances for 2013 are 14 cents for charitable miles and 24 cents for moving and medical miles.
Student Loan Interest
Taxpayers paying qualified education loans may be able to deduct up to $2,500 of interest on the loans in 2013. There is a phase out that begins for taxpayers with modified adjusted gross income above $60,000 for single and head of household taxpayers, and $125,000 for married filing jointly taxpayers. There is no deduction allowed for married filing separately.
Child Tax Credit
In 2013, the nonrefundable credit for each child under the age of 17 is $1,000. For taxpayers with income above $75,000 ($110,000 married filing jointly), the credit is phased out by $50 for each $1,000 of adjusted gross income above the threshold amount. For taxpayers whose tax liability is not large enough to fully utilize the allowable credit, the unused credit is refundable to the extent of 15% of the taxpayer's earned income in excess of $3,000.
Adoption Credit
The adoption credit can now be taken on expenses up to $12,970. The phase out applies for filers with AGIs between $194,580 and $234,580. For 2013, the adoption credit is not refundable. That means that the credit can be claimed only up to the amount of your federal tax liability.
American Opportunity Tax Credit
The American Recovery and Reinvestment Act of 2009 created a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for married filing jointly). 40% of the credit is refundable. The credit is available through 12/31/17.
Lifetime Learning Credit
If a taxpayer, spouse, or dependent is a student, the taxpayer may be eligible for a nonrefundable credit of up to $2,000 (20% of the first $10,000 of qualified tuition and expenses). The credit is allowed for an unlimited number of years on a per taxpayer basis. It covers all 4 years of post-secondary education as well as graduate school and courses to improve job skills. There is a phase out for taxpayers with modified adjusted gross income above $53,000 ($1 07,000 married filing jointly).
Nonbusiness Energy Property Credit
You may claim a credit of 10 percent of the cost of certain energy saving property that you added to your main home. This includes the cost of qualified insulation, windows, doors and roofs. In some cases, you may be able to claim the actual cost of certain qualified energy-efficient property. Each type of property has a different dollar limit. Examples include the cost of qualified water heaters and qualified heating and air conditioning systems. The credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows. Your main home must be located in the U.S. to qualify for the credit. The credit was to expire at the end of 2011, but the American Taxpayer Relief Act of 2012 extended it to the end of 2013.
Residential Energy Efficient Property Credit
Taxpayers are allowed a 30% credit for the purchase of qualified property placed in service before 2017 including:
· Qualified solar energy property used to generate electricity.
· Qualified solar water heating property.
· Fuel cell property producing electricity. This credit is capped at $500 for each .5 kilowatt of capacity.
· Qualified small wind energy property that uses wind turbines to generate electricity.
· Qualified geothermal heat pump property.
Penalty Free IRA Withdrawals
Penalty free withdrawals from all IRAs are permitted for undergraduate and graduate expenses {tuition, books, and room and board). The law also allows individuals to receive distributions from their IRAs up to a $10,000 lifetime limit to pay for first-time homebuyer expenses. ·First-time homebuyers" are defined as someone who has not owned a home for two years.
Coverdell Education Savings Accounts (Formerly Education IRA)
Up to $2,000 per beneficiary per year can be contributed to an education savings account for a beneficiary under age 18, regardless of whether the contributor or the beneficiary has any earned income. It is nondeductible and is phased out pro rata as modified adjusted gross income increases from $95,000 to $110,000 single, head of household, and married filing separately ($190,000 to $220,000 married filing jointly). A Coverdell ESA can be used to pay elementary and secondary, as well as higher education expenses.
Home Office Expenses
Expenses related to a home office are generally deductible if,
1. you use the office exclusively on a regular basis as your principal place of business or a place patients, clients, or customers use in meeting or dealing with you;
2. you are an employee and the business use is for the convenience of your employer; or
3. you use it exclusively and regularity for administrative and management activities of your business if there is no other fixed location to perform such activities.
Effective for tax years beginning on or after January 1, 2013, instead of actual expenses the IRS allows a safe harbor business use of home deduction at a rate of $5 per square foot for the portion of the home used in the qualified business, but not to exceed 300 square feet.
Estimated Tax Payments
No penalty for failure to pay estimated tax applies for taxes payable of less than $1,000. Household taxes must be included in estimates. If you don't meet this exception, you are required to pay the lower of:
1. at least 90% of the tax shown on the current year return, or
2. 100% of the tax shown on the prior year's return.
For individuals with adjusted gross income for 2012 in excess of $150,000 ($75,000 for married filing separately) the estimated payments should be 110% of the prior year tax liability.
Social Security Earnings Limits
The earnings limit for 2013 is $15,120 for retirees ages 62 up to full retirement age (FRA). One dollar must be repaid for every two dollars earned over this figure. For those reaching FRA in 2013, the earnings limit for the months prior to reaching FRA is $40,080. Starting in the month that you reach your FRA, there are no limits on your earnings.
Gain from Sale Of Principal Residence
A taxpayer generally may exclude up to $250,000 {$500,000 on a joint return) of gain realized on the sale or exchange of a principal residence. The taxpayer must have owned and occupied the residence as a principal residence for at least two of the five years before the sale or exchange.
The IRS Reform Act says homeowners can receive a portion of the exclusion based on how long they live in the home as long as the move is due to a change in place of employment, health, or unforeseen circumstances.
Capital Gains for Individuals
In 2013 the maximum capital gains rate for sales of long-term capital assets (held more than 12 months) is 20% for taxpayers in the 39.6% tax bracket and 15% for taxpayers in the 25%-35% brackets {0% for taxpayers in the 10% and 15% brackets). For 2013, qualified dividends will continue to be taxed at the same rates as long-term capital assets.
We're here to help. For no obligation free consultation contact us today!
(952) 583-9108, (651) 621-5777, (818) 627-7315, (773) 599-7182
No comments:
Post a Comment