You can’t escape the paperwork, but you can find ways to save on your taxes.
Can I take education credits for my son?
Oscar Hernandez, 52, brings home more than $200,000 a year from the successful pipe-laying business he founded 20 years ago: too much to claim the American Opportunity tax credit, which would help defray son Enrique’s college costs (the max income is $90,000 for singles).
The tax deal extended this credit, worth up to $2,500, until 2017.
Enrique, 18, works for his father part-time during the school year and full-time over the summer, earning about $25,000 annually.
To maximize tax savings for the whole family, Syracuse CPA Gary Carpenter suggests that Oscar forgo claiming his son as a dependent and have Enrique cover his $14,000 annual tuition bill.
That way, Enrique can claim an AOC equal to his tax bill, roughly $1,800 (this strategy works only if your kid pays lots in taxes). Oscar can make the tuition money a gift — that tax-free cap is $14,000 in 2013.
Marijuana plants are seen under multi-colored grow lights in the growing rooms at the Denver Discreet Dispensary in Denver, on Jan. 1, 2014.
Can I deduct state sales taxes?
The tax deal revived the option to deduct state sales taxes instead of income taxes for 2012 and 2013 — great news if you live in one of the nine income tax-free states, including Texas, Florida, and Washington.
No problem if you didn’t keep every sales slip for the year — the IRS provides a figure based on your income.
If you made a big-ticket purchase like a car or boat last year, dig up that receipt. You can add the sales tax you paid to the IRS base.
Even in low-tax states, run the numbers using the sales-tax-deduction calculator at irs.gov.
Can I get a break for supporting adult kids?
A quarter of 18-to 34-year-olds have had to move back home with their parents because of the poor economy, says the Pew Research Center.
You might be able to claim them as dependents, says Bellmore, N.Y., CPA Jeff Sklar. Full-time students living at home qualify up to age 24, assuming they paid for less than half of their support during the year, including college costs and food.
Your potential tax breaks don’t end there. You can claim any adult relative as a dependent — child, sibling, or parent — as long as you provided more than half their financial support during the year and their total income, excluding Social Security, didn’t exceed $3,800 in 2012. They do not even have to live with you to qualify.
How can I meet the medical deduction?
You have to clear a high bar to deduct medical expenses — spending must exceed 7.5% of your AGI in 2012 — and the limit is going up, to 10% of AGI if you’re under 65 in 2013.
To reach that threshold, time big-ticket health care outlays carefully. “You can push off certain procedures and bunch all your costs in one year,” says Los Angeles CPA Aaron Barlev.
And don’t overlook anything: Health-related home renovations, such as installing a therapeutic pool to treat your back, can qualify.
How can I lower taxes on my investments?
All but the highest earners ($450,000 for married couples, $400,000 for singles) will continue to pay no more than 15% on long-term capital gains and qualified dividends (the ultrawealthy pay 20%).
But 2013 also ushers in a new 3.8% Medicare tax on capital gains and dividends if your AGI tops $200,000 for singles and $250,000 for couples.
So take full advantage of tax-deferred plans, and stick with tax-efficient index funds and ETFs outside of them.
Another tactic — looking for losses to offset your profits when you sell — could get easier. Brokerages and fund companies must now track and report how much you paid for stocks and funds.