BOSTON (CBS) – The standard deduction for couples filing jointly is $11,600 and for singles it is one half that at $5,800 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 $379,150 whether you are single or filing jointly and the lowest rate is 10% for the first $8,500 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. This rate will remain at 15% thru next year. (2012)
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.
Also consider donating directly from your IRA to a charity if you are over 70½. Transferring the money directly from the IRA to the charity is a way to get a tax break for your donation if you don’t itemize deductions on your tax return. You cannot double dip and take a charitable deduction as well. Limits: $100,000.
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 was also extended thru 2012. 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. This credit affects more tax payers than the Hope Credit.
If you have a Coverdell Education Savings Account, an ESA, you have two more years to use the money for private elementary and high school tuition. In 2013 only college expenses will qualify for tax free distributions.
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.