Four tips for filing your 2013 income tax returns
With tax day less than a month away, here are some helpful tips on how to do your taxes correctly. Ketel Thorstenson LLP, is a Rapid City accounting firm that keeps track year round of the ever-changing tax code. Owners of small businesses and people who receive regular income from their investments should pay particular attention to the first two items.
1: New Tax Rules for Buying or Improving Property
The IRS issued final regulations in September 2013 that clarify when business owners can deduct the cost of acquiring, producing or repairing tangible property. For example, the costs of resurfacing a floor to keep the property in good condition would likely be deducted immediately, whereas the removal of a floor and installation of a new floor may need to be capitalized. Almost all businesses will be affected by the new regulations. The good news is that taxpayers may deduct any single item whose cost does not exceed $500 per invoice or item.
2: Net Investment Income Surtax
The 3.8 percent Net Investment Income Surtax is something new for 2013 individual and trust tax returns. If your total income is above certain thresholds, you will owe additional taxes on your passive income. This includes interest, dividends, capital gains, royalties and passive investments. This adds an additional level of complexity to your tax return.
3: Gifting
One of the most common questions on taxes is about gifting. A gift of money is not deductible on your tax return, nor can the recipient report the gift as income. For 2014 the annual gift exclusion is $14,000 per person. A gift of a direct payment to providers for medical and education expenses do not count toward the annual gift tax limit.
4: Head of Household
Everyone must choose a filing status when preparing their tax return. A common mistake is to file as single rather than Head of Household. Head of Household status provides expanded tax brackets and a higher standard deduction than the single filing status. Normally, people assume that only single parents can file as Head of Household. Even if the child does not live with you — but you pay for over half their living costs — then you can file as Head of Household. The child must be claimed as a dependent, and there are other filing status rules. Make sure you claim the correct filing status in order to receive the best tax benefit possible.