Death and taxes – two things you can be certain of unless you are a corporation1 or a credit union.2
The IRS began accepting tax returns for the 2013 tax year on Friday, January 31st. This is one day later than last year and nine days later than the year before. This year’s delay is due to the government shutdown that happened last year3 while the previous year’s delay was attributed to the American Taxpayer Relief Act which was passed to help in averting a government shutdown.4
According to the IRS, nearly 150 million tax returns were filed of which all but 28.4 million were filed electronically last year.
You have ten weeks to file your taxes unless you choose to file an extension which gives you another six months. If you choose the extension, this does not get you off of the hook on paying taxes that are due. The IRS can penalize you and charge interest (3% at present) on underpayments. This is probably why most of us overpay during the year and receive refunds that average nearly $3,000 per filer. Here in California, the average refund is $2,909.5
If you are doing your own taxes, use a computer tax program such as TurboTax. The U.S. tax code is so complex that many tax professionals have trouble keeping up with all of the changes and conflicting guidance in the tax codes voluminous 77,030 pages. If you are hiring a tax professional, make sure you choose someone who will be around for a few years. Stay away from anyone who says that they get larger refunds than others in their field and especially stay away from anyone who bases their fee on the amount of your refund. Tax evasion can be punishable with a $250,000 fine and up to five years in prison.6
New tax laws that were in effect for 2013 include the reinstatement of the Social Security Tax at 6.2% (was 4.2%) of your wages on up to $113,700 in earnings. The Medicare tax remains unlimited at 1.45% of wages with those earning over $200,000 paying an extra 0.9%. Remember to deduct sales and local taxes against federal taxes. In California, do not be surprised if the Franchise Tax Board comes after you for online or out of state purchases where no interest was paid.
There is now a standard home office deduction of $1,500 that can be used if you do not want to keep track of actual expenses.
If you are going through a foreclosure or short sale, you will probably not have to count the debt elimination as income (before the Great Recession, you did). If you pay mortgage insurance premiums, these are deductible as mortgage interest.
Same sex married couples may now file as ‘married filing jointly’.
The standard mileage rate for the use of your car in business is 56.5 cents per mile, 24 cents for medical or moving purposes and 14 cents when used in service for charities. In 2014, mileage rates for business, medical and moving decrease by 0.5 cents per mile.
In closing, let us not forget the Will Rogers’ words, “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”
1While corporations are legally people, they do not die.
2Credit unions are a special type of bank that does not pay taxes.2a
2a Many in the banking industry call credit unions the full employment act for bankers as they look down on their credit union brethren.
3Just think what could have been if the government had continued the shutdown.
4Seriously…I’m not joking.
5Connecticut is highest at $3,218 while Maine and Montana tie at the bottom at $2,323.
6It would have to be in a federal prison as there is a ‘No Vacancy’ sign in most California prisons.