Every January, people think of new resolutions for the New Year, however many of us overlook one very important resolution: to become more vigilant about how and when they prepare their taxes.
This year, you should resolve to do your taxes early, particularly if you think you will be getting a return–and especially if you are an entrepreneur.
New Year, New Tax Laws
This year has some interesting changes when it comes to the tax laws. Though most of the changes apply to upper-income individuals, it does not hurt to keep them in mind for when they do apply to you.
Let me start by the one that affects all of us:
- Higher threshold for itemized medical expense deductions:
In previous years, individuals could claim an itemized deduction for medical expenses paid for themselves and their family, to the extent the expenses surpassed 7.5% of AGI (adjusted gross income). Starting this year, it’s been raised to 10% of AGI for most of us. However, if you or your spouse is 65 or older as of 12/31/13, this change will not affect you until 2017.
- Same sex couples MUST file as married individuals
Same sex couples who are recognized by the state or foreign laws must be recognized for federal tax purposes as well. If you were married in 2013, you can file married jointly or married filing separate from now on.
For folks categorized as upper-income individuals the changes are as follows:
- New higher tax rates.
The maximum tax rate has been increased to 39.6% ( If you make $400,000 or more, you belong to this category). The same goes for capital gains and dividends; they went up from 15% to 20 %.
- New itemize deduction phase out.
AGI thresholds : $250,00 for singles, $300,000 for married filing jointly. Specifically the total amount is reduced by 3%
New 0.9 % surtax on salaries and self-employment income.
$200.000 for unmarried individuals and combined salary above $250,000 for married filing jointly
Remember, the key is in our organization. To make this task easier, sit down at the beginning of each year with 12 envelopes, label them with the 12 months of the year, put every receipt you get on a daily basis there. Review the envelope when you get the statements from your checking account and credit cards, match the charges and categorized them. Believe me, it will be less painful than seating once a year.
Share your tax prep rituals in the comment section below, follow Vielka on Twitter at @VielkaBurey!