Get receipts for charitable contributions and other important transactions. Get receipts for charitable contributions and other important transactions. —Simon Cross
SALT LAKE CITY — In planning for each upcoming tax season, Salt Lake City certified public accountant Simon Cross recommends establishing a systemized approach to gathering pertinent information.
He said placing receipts and documents in a dedicated file throughout the year is a good way to stay organized and to avoid confusion when tax time rolls around. Call it the organized shoebox approach.
"Get receipts for charitable contributions and other important transactions," Cross said. "Take the time to be prepared."
The IRS suggests collecting important records such as forms W-2 and 1099, bank statements and brokerage statements for income-related information.
For expenses, sales slips, invoices, receipts, canceled checks or other proof of payment should be kept.
For home sales or purchases, closing statements are critical documents, along with purchase and sales invoices, proof of payment, insurance records and Form 2119 — if you sold a home before 1998. As for investments, brokerage statements, mutual fund statements as well as Forms 1099 and 2439 are key records to maintain.
Looking ahead to next tax season, there are some changes for tax year 2013. For instance, tax brackets for households making more than $400,000 (single) or $450,000 (married filing joint) will rise from 35 percent to 39.6 percent, though this change will not affect 2012 income tax returns.
Taxpayers in the new higher bracket will also be subject to an increased capital gains rate of 20 percent — up from 15 percent as well as the 3.8 percent surcharge from the Affordable Care Act.
With the expiration of the payroll tax, net pay for employees is also now 2 percent less, meaning the full 6.2 percent of Social Security is now being withheld from pay. The increase will help fund the nation's Social Security system, but is coming out of your check.
Additionally, the wage limit on which Social Security is taxed was increased to $113,700, while the Medicare tax is unlimited, according to Fox Business. However, if you earn more than $200,000, an additional 0.9 percent will also be withheld, said Cross.
The tax deductions that were left intact for 2013 included the discharge of the qualified principal residence exclusion. Filers going through a foreclosure or short sale who may have had loan forgiveness could benefit because the exemption would exclude nearly the entire forgiven amount from taxable income.
Educators will still be allowed to deduct $250 in related job expenses as an adjustment to income, while mortgage insurance premiums may still be deducted as mortgage interest, and the deduction for state and local sales taxes is also still allowed, the report stated.
The $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit and the enhanced American Opportunity Tax Credit are all being extended through 2017. Tuition costs may also be deducted as an adjustment to income.
Cross also explained that the standard mileage rates for the use of a vehicle (cars, vans, pickups or panel trucks) will be 56.5 cents a mile for business travel, 24 cents per mile driven for medical or moving purposes and 14 cents a mile driven in service of charitable organizations.