As you close in on the time to file your 2013 Tax Returns, here are some things to remember. You can certainly cut your tax bill by claiming all the breaks you deserve—including some you may have forgotten or never even knew about. Some of these, as you have probably heard in the news, expired … only to be reinstated by Congress.

For 2013 returns, these are a go:

  • American Opportunity Credit -- Unlike the Hope Credit, the American Opportunity Credit is good for all four years of college (not just the first two). Don't shortchange yourself by missing this critical difference. This tax credit is based on 100% of the first $2,000 spent on qualifying college expenses and 25% of the next $2,000 ... for a maximum annual credit per student of $2,500.

  • Lifetime Learning Credit -- This credit can be claimed for any number of years and can be used to offset the cost of higher education for yourself or your spouse . . . not just for your children. The credit is worth up to $2,000 a year, based on 20% of up to $10,000 you spend for post-high-school courses that lead to new or improved job skills. Classes you take even in retirement at a vocational school or community college can count. If you brushed up on skills in 2013, this credit can help pay the bills.

  • Energy-Saving Credits -- It appears that 2013 may actually be the end of the road for credits for most Energy-Saving Home Improvements. The current tax credit is worth 10% of the cost of qualifying energy savers, such as new windows and insulation. (It expired before, in 2011, but was retroactively revived for 2012 and 2013.) If you made qualifying improvements in 2013—and you did not use up the maximum $500 credit (only $200 of which can be for windows) in earlier years—be sure to cash in with your 2013 return.

    • Note: Another credit for saving energy is still alive, though, and it has no dollar limit. This credit goes to homeowners who install qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. Your credit can be 30% of the total cost (including labor) of such systems installed through 2016.

  • Student Loan Interest paid by Mom and Dad -- Generally, you can deduct mortgage or student-loan interest only if you are legally required to repay the debt. But if parents pay back a child's student loans, the IRS treats the money as if it were given to the child, who then paid the debt. So a child who's not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad. And he or she doesn't have to itemize to use this deduction. (Note: Mom and Dad can't claim the interest deduction even though they actually foot the bill because they are not liable for the debt)

  • Child-Care Credit -- A credit is so much better than a deduction because it reduces your tax bill dollar for dollar…so missing one can cost you a bundle! If you pay for child care while you are at work, you may qualify for a tax credit worth between 20% and 35% of what you pay for child care up to $6,000 for the care of two or more children.

    • Note: If you have a tax-favored reimbursement plan available from your employer, you may want to consult a tax professional to help maximize your tax savings using the plan and/or the child-care credit.

  • State Sales Tax -- Congress offers itemizers the choice between deducting the state income taxes or state sales taxes they paid. You choose whichever gives you the largest deduction. The IRS has tables that show how much residents of various states can deduct, based on their income and state and local sales tax rates. But the tables aren't the last word. If you purchased a vehicle, boat or airplane, you may add the sales tax you paid on that big-ticket item to the amount shown in the IRS table for your state.

  • State Income Tax Paid -- If you paid tax with your 2012 state income tax return, remember to include that amount in your state-tax deduction on your 2013 federal return, along with state income taxes withheld from your paychecks or paid via quarterly estimates during 2013.

  • Out-of-Pocket Charitable Deductions -- It's hard to overlook the big charitable gifts you made during the year, but little things add up too. You can write off out-of-pocket costs incurred while doing work for a charity. (For example, ingredients for cakes you prepare for a nonprofit organization's raffle and postage you buy for your child’s school's fund-raising mailing count as charitable contributions.) Keep your receipts if your contribution totals more than $250. You will also need an acknowledgement from the charity documenting the support you provided. If you drove your car for charity in 2013, remember to deduct 14 cents per mile, plus parking and tolls paid.

  • Job-Hunting Costs – If you were among the unemployed looking for a job in 2013, we hope you kept track of your job-search expenses ... or can reconstruct them. If you're looking for a position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Qualifying expenses can be written off even if you didn't land a new job. But such expenses can be deducted only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. Job-hunting expenses incurred while looking for your first job don't qualify.

    • Note: Some examples of deductible job-search costs include mileage, if incurred as part of the job search, at 56.5 cents a mile for driving your own vehicle, cab fares, parking and tolls, food and lodging expenses if your search takes you away from home overnight, employment agency fees, costs of printing resumes, business cards, postage, and advertising.

  • Moving Expenses for First Job -- Although job-hunting expenses are not deductible when looking for your first job, moving expenses to get to that job are. And you get this write-off even if you don't itemize. To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area. If you drove your own car on a 2013 move, deduct 24 cents a mile, plus what you paid for parking and tolls

  • Military Reservists' Travel Expenses -- Members of the National Guard or military reserve may write off the cost of travel to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills.

  • Refinancing Points -- When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance, though, you have to deduct the points on the new loan over the life of that loan. But if you sell or pay off the loan—because you sell the house or refinance again—you get to deduct all remaining undeducted points.

    • Note: One exception to this rule: If you refinance a “refinanced” loan with the same lender, you add the points paid on the latest deal to the remaining points from the previous refinancing … then deduct that amount over the life of the new loan.

  • Jury Pay -- Many employers continue to pay employees' full salary while they serve on jury duty and require employees to turn over their jury pay to the company coffers. The only problem is that the IRS demands that you report those jury fees as taxable income. To even things out, you get to deduct the amount you give to your employer. The problem is there's no line on the Form 1040 labeled “jury fees.” Instead, the write-off goes on line 36 … add your jury fees to the total of your other write-offs and write "jury pay" on the dotted line.

  • Accelerated Depreciation – Businesses need to stay on their toes to capture tax breaks for buying new equipment. The rules seem to be constantly shifting as Congress writes incentives into the law and then allows them to expire or to be cut back to save money. Take “bonus depreciation” as an example. Back in 2011, rather than write off the cost of new equipment over many years, a business could use 100% bonus depreciation to deduct the full cost in the year the equipment was put into service. For 2013, that bonus depreciation is 50%. Perhaps even more valuable, though, is the option of "expensing" the full cost of qualifying assets (new and used) in the year you put them into service. The dollar limit for expensing seems to change every year. For 2013 purchases, you can expense up to $500,000 worth, depending on profit and other factors. The $500,000 cap phases out dollar for dollar if you put more than $2 million worth of assets into service in 2013.

  • Simplified Option for Home Office Deduction -- Beginning in tax year 2013, taxpayers may use a simplified option when figuring the deduction for business use of their home. This simplified option does not change the criteria for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements of the allowable deduction. Some highlights of the simplified option include:

    • A standard deduction of $5 per square foot of home used for business (maximum 300 square feet)

    • Allowable home-related itemized deductions claimed in full on Schedule A (For example: Mortgage interest, real estate taxes)

    • No home depreciation deduction or later recapture of depreciation for the years the simplified option is used.

In addition to the above tax breaks, a few other potentially important things that you may need to know for the 2013 Tax Year are as follows:

  • Reinvested Dividends -- This isn't a tax deduction, but it is an important subtraction that can save you a bundle. If, like most investors, you have mutual fund dividends automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. This reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include reinvested dividends in your basis results in double taxation of the dividends.
    • Note: Funds should now report to investors—and the IRS—the tax basis of shares redeemed during the year, but that requirement applies only to shares purchased in 2012 and later years.

  • Estate Tax on Income in Respect of a Decedent -- This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received.

    • Note: Let's say you inherited a $100,000 IRA that was included in your benefactor's estate and added $40,000 to the estate-tax bill. You get to deduct that $40,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $20,000 itemized deduction on Schedule A. That would save you $5,600 in the 28% bracket

  • Sale of Demutualized Stock -- Despite years of litigation, this issue is still up in the air. In 2013, the IRS finally found a court that agrees with its tough stand on the issue of demutualized stock. That's stock that a life insurance policyholder receives when the insurer switches from being a mutual company owned by policyholders to a stock company owned by shareholders. The IRS's longstanding position is that such stock has no tax basis, so that when the shares are sold, the taxpayer owes tax on 100% of the proceeds of the sale. In 2009 and again in 2011, federal courts sided with taxpayers who challenged the IRS position. Shortly after the IRS won its case in early 2013, the court in one of the earlier cases came up with a complicated method to pinpoint a basis. Rather than agreeing with experts who say the basis should be 100% of the stock’s value at the time of the demutualization, the court’s method set the basis in the case at hand at between 50% and 60% of the stock’s value when the taxpayers received it. Sooner or later, the Supreme Court may have to settle things.

    • Note: In the meantime, if you sold stock in 2013 that you received in a demutualization, you have a couple of choices. Claim a basis and, if the IRS rejects your position, file an appeal.  Or use a zero basis, pay the tax on the full proceeds of the sale and then file a "protective refund claim" to maintain your right to a refund if the matter is eventually settled in your favor.

  • Waiver of Penalty for Newly Retired -- This isn’t a deduction, but it can save you money if it protects you from a penalty. Because our tax system operates on a pay-as-you earn basis, taxpayers typically must pay 90% of what they owe during the year via withholding or estimated tax payments. If you don’t, and you owe more than $1,000 when you file your return, you can be hit with a penalty for underpayment of taxes. There are several exceptions to the penalty, including a little-known one that can protect taxpayers age 62 and older in the year they retire and the following year.

    • Note: You can request a waiver of the penalty—using Form 2210—if you have reasonable cause, such as not realizing you had to shift to estimated tax payments after a lifetime of meeting your obligation via withholding from your paychecks.

  • Required Minimum Distributions from Retirement Accounts -- IRA owners who turned 70½ between July 1 and December 31, 2013, can delay their first distribution until April 1, 2014. But if they do, they have to take a second distribution by December 31, 2014, and an annual distribution by December 31 every year after that. A double payout could substantially boost your 2014 income -- and your 2014 tax bill. Mandatory distributions also apply to owners of inherited IRAs and other retirement accounts.

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      Note: Employees who continue working past age 70½ are not subject to mandatory distributions from their company retirement plans until they retire. However, they still must take distributions from their IRAs.

logo-avinna-jms-200x97As you know, developments in legislation and tax law offer opportunities and pitfalls for the American taxpayer. Our professionals have spent considerable time and energy learning and exploring the new rules. This landscape is constantly changing and we have developed a sensible approach to addressing these changes in conjunction with existing rules and current economic conditions. Tax law affects everyone differently and each individual, business and family is unique. We refuse to use a cookie cutter approach. Let us apply our experience and resources to your specific needs. Please call or email for appointment.

Cited: McCormally, Kevin. “The Most-Overlooked Tax Deductions”. Kiplinger, December 2013.Web. January 2014.

The purpose of this article is to provide information, rather than advice or opinion. It is accurate to the best of the Author’s knowledge as of the date of the article. Please note that there are exceptions, limitations, etc. that may apply. Accordingly, this article should not be viewed as a substitute for the guidance and recommendations of a retained professional. Jody M. Singleton, CPA, recommends consultation with our firm, competent legal counsel, and/or other professional advisors before applying this material in any particular factual situations.

IRS Circular 230 Notice: The discussion of U.S. federal tax law, contents, conclusions (if any), and/or references to any resources in this material are not intended to: (a) be used or relied upon by any taxpayer for the purpose of avoiding any federal tax penalties; (b) promote, market or recommend any products and/or services except to the extent expressly stated otherwise; or (c) be considered except in consultation with a qualified independent tax advisor who can address a taxpayer’s particular circumstances.