Before you start preparing your 2013 tax return, review these important updates.
Time marches on, and you'll soon be receiving your 2013 W-2 and 1099s. So it's not too soon to start thinking about putting together your Form 1040 for last year. As you do, please take note of the following key federal income tax changes that took effect in 2013.
New higher tax rates for upper-income individuals
For most individuals, the 2013 federal income tax rates are the same as for 2012: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent. However, the American Taxpayer Relief Act (ATRA) increased the maximum rate for 2013 to 39.6 percent. That rate only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, and heads of households with income above $425,000.
Smartphones can help keep track of receipts, donations and even your refund status.
Tax-filing season is upon us, and it's easy to be overwhelmed by all the forms, documents, and information you need to collect. Luckily, there are dozens of mobile apps designed to help.
Some are great for keeping yourself organized throughout the year, while others don't come into play until you're ready to file or want to check on the status of your returns.
Here's a look at our 10 favorite tax-prep apps for 2014:
Platform: iOS, Android
Cost: lite version is free; premium packages start at $9.95/month
How it helps: This app lets you digitize and archive receipts and other paper documents into a categorized, searchable, IRS-accepted database for easy access during tax time. You can snap photos of your receipts and email them in, or send hard copies to the company via mail for processing.
Maxing out these traditional tax shelters at the beginning of the year will pay off big time thanks to tax-free compounding.
This is the first full business week of the new year, and the first thing you should do once you finish the word week is make your 2014 contributions to your traditional or Roth IRA, Coverdell account, 529 college savings plan and/or health savings account.
Thanks to the miracle of tax-free compounding, by making your contribution as soon as possible in the beginning of each year you will have substantially more in the account by the time you are ready to retire, or when you need the money to pay for education or medical bills, than if you wait till the last minute.
Shoppers in Indiana, Nevada and Tennessee will now see a sales tax line added to their online invoices.
Attention online shoppers in Indiana, Nevada and Tennessee. I hope you stocked up on your orders from Amazon before 2014 arrived.
As of Jan. 1, the online retail giant is collecting taxes on products purchased by residents of those three states.
That brings the number of states in which Amazon collects sales taxes to 19. The others are Arizona, California, Connecticut, Georgia, Kansas, Kentucky, Massachusetts, New Jersey, New York, North Dakota, Pennsylvania, Texas, Virginia, Washington, West Virginia and Wisconsin.
More state sales taxes coming?
Will shoppers in the rest of the United States see a sales tax line added to their Amazon and other online invoices in 2014? Possibly.
In the states where it has agreed to collect sales taxes, Amazon has expanded its physical presence, generally by building warehouses or distribution centers. Those structures provide the necessary legal nexus for states to demand tax collection.
Not only can you get a refund faster by not procrastinating, it can also help you avoid fraud.
If you like to file your taxes early and then chuckle at all the procrastinators who wait until April 15 nears, your day of reckoning is getting close. The earliest day the IRS will begin processing 2013 individual tax returns is Jan. 31, a date slightly later than usual due to the government shutdown last fall.
What are the advantages of filing early? Here's a list of good arguments from tax preparers.
Get your money now. This is the most obvious reason a taxpayer might want to file as early as possible. But try not to fall into the trap of thinking you need the refund before the IRS can get it to you. Some tax preparation services offer refund anticipation loans, which have steep fees that eat into that refund.
You'll also likely get your money in a shorter amount of time if you file earlier than the person who files a month or two after you, according to Elaine Phelan, a professor of accounting at Siena College in Loudonville, N.Y. Early filers may only have to wait for their refund for 21 days -- the average time taxpayers have had to wait in recent years, and sometimes less, according to the Internal Revenue Service -- whereas a later filer may have to wait longer, say, 31 days.
"If you work with a paid preparer, they are excited to jump into the new year and will enthusiastically get your taxes done quickly," Phelan says. "If you are expecting refunds, the IRS processing centers are less busy and will process your claim faster, so you might even get that refund sooner."
Many Americans expect to continue working past traditional retirement age.
Many people would consider Margaret Haapoja's post-retirement career ideal. At 71, she has continued her longtime career of writing gardening articles published in newspapers and magazines. What's not to love about getting paid for a hobby you enjoy, covering a topic on which you are an expert?
The weed of tax complications, for one. Haapoja built her retirement savings on her writing income, and now her writing income is a factor that she and her husband must take into consideration as they calculate how much they can withdraw from her individual retirement account. They also have to look at how her income affects their net take from Social Security. "It doesn't discourage me from taking work," Haapoja says, but the situation is more complicated than she had anticipated.
More Americans than ever expect to continue working past the traditional retirement age. The 2013 Wells Fargo Middle Class Retirement study, which surveyed 1,000 middle-class Americans, found that 34 percent of this group thinks they will have to work until age 80.
But when Social Security benefits are added to your income stream, you need to factor in a fresh set of tax considerations, as Haapoja has learned. After a certain point, new earnings can push you into a tax bracket that effectively erodes some of your Social Security income, which means you might not capture the net gain from working that you had hoped. If you're close to retirement, you need to bear this in mind as you tee up an encore career.
Making some early preparations can reduce stress and save you money at tax time.
Beware the ides of April.
That's when many of us procrastinators find ourselves in a frenzy, trying to cram a year's worth of tax planning into the span of a few days. But the act of paying Uncle Sam shouldn't be treated like finals. After all, it's not just a letter grade that's at stake anymore -- it's your time, your peace of mind and, most important, your money.
To clue you in on the tax moves that could lower your overall bill for the year -- and help you avoid an all-nighter come April 14 -- we've put together some of the most important questions you should ask yourself now. It may seem like a pain to gather the records and receipts that you'll need to answer some of them, but you'll thank yourself later.
No. 1: Do I need an accountant?
Before you do anything, you should decide whether you need the help of a professional. This is especially important to consider if your financial situation became more complicated this year. If you went through a big life change -- like getting married, having a baby, buying a home or starting your own business -- or if you exercised stock options, you should probably hire an accountant.
Donations can help lower your tax bill if you know and follow the IRS rules.
Each year as Dec. 31 draws near, Americans are bombarded by requests for donations. Many answer those solicitations, happily giving to their favorite charities.
This year-end generosity also might pay off at tax time, as long as you know and follow the Internal Revenue Service's rules on tax deductions for donations.
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