BOSTON (CBS) – The standard deduction for couples filing jointly is $11,400 and for singles it is one half that at $5,700 for this year.
Review your tax situation now so you have some idea what tax bracket you will fall into this year and decide whether you want to do the long 1040 or the short 1040EZ. Do your taxes both ways for it is the only way to figure out what is the better deal for you. If your deductions don’t add up to the standard deduction it’s a no brainer, file the 1040EZ and get the larger deduction.
The highest tax rate this year is 35% and that comes into play if you have income over $373,650 whether you are single or filing jointly and the lowest rate is 10% for the first $8,375 of income for singles and twice that if you are married filing jointly. And everyone who pays taxes will pay the 10% rate on some of their income.
Qualified dividend income and long term capital gains will be taxed at 15% for those taxpayers in the 25% or higher tax bracket and will be 0 (zero) for everyone else.
Some good tax planning would be to gift appreciated stock you are holding to your grandchildren if they are in the lower tax bracket. They will take on your cost basis and owe taxes on the profit they make, but they will be taxed at their rate and not yours.
And the Kiddie Tax will kick in if their investment income is more than $1,900. And the kiddie tax applies to kids under the age of 19 and full time students under the age of 24.
The American Opportunity Credit is due to expire this year. This allows you to take a tax credit of up to $2,500 if you have paid at least $4,000 in college tuition for the year. If you come up short consider paying next semester’s tuition this year.
If you have a Coverdell Education Savings Account, an ESA, this is the last year you will be able to use the money for private elementary and high school tuition. Next year only college expenses will qualify for tax free distributions.
A change in 529 plans as well. This is the last year to use the money tax free to purchase a computer or software.
Health Insurance costs for the self-employed individual is 100% deductible. This can be a key factor in planning for a small business. A family plan could come with an annual price tag of $9,000 or more.
One more thing: Are you still due a refund from last year? The Internal Revenue Service is looking for 111,893 taxpayers who are due refund checks worth over $164.6 million after the checks were returned as undeliverable. Average check $1471.