​James G. Flannery CPA LLC

Same-sex Married Couples May File Joint Federal Tax Returns
Posted on 8/30/2013

 

The Internal Revenue Service and the Treasury Department have announced that same-sex married couples will be able to file joint federal tax returns.

Same-sex married couples that are legally married in states that recognize their marriages will be treated as married for federal tax purposes. The ruling applies even if the couple lives in a state that does not recognize same-sex marriages. The ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized in certain states.

Legally married same-sex couples must file their 2013 tax returns using the either the filing status “married filing jointly” or “married filing separately”. 

Same-sex couples married prior to the ruling may file amended tax returns for any open tax years choosing to be married for federal tax purposes. Amended returns and claims for refund can still be filed for tax years 2010, 2011, and 2012. Taxpayers may file a claim for refund on Form 1040X, Amended U.S. Individual Tax Return.

 

Simplified Method for Home Office Deduction
Posted on 8/27/2013

 

Beginning in 2013 taxpayers who claim a deduction for the business use of their home may be able to use a simplified method for computing the deduction.

The rules for claiming the deduction have not changed. To qualify for the deduction the area in the home must be regularly and exclusively used for business. The home office must be the principal place for business, as a place to meet clients in the course of business, or in connection with the business if it is a separate structure not attached to the taxpayer’s personal residence. 

The maximum allowable deduction under the simplified method is $1500. Taxpayers electing to use the simplified option are allowed to claim a deduction of $5 per square foot for the area of the home used for business up to a maximum of 300 square feet.

Under the simplified method deductions for Mortgage Interest and Real Estate Taxes are deducted in full on Schedule A and are not allocated between Schedule A and the appropriate business schedule as they would be under the regular method.. 

There is no deduction for depreciation nor is there a recapture of depreciation upon the sale of your home under the simplified method as there is with the regular method.

The home office deduction under either method is limited to the gross income of the business less the related business expenses. In other words the deduction for the business use of your home cannot create a loss. The amount of home office expenses in excess of the limitations may be carried over to subsequent tax years under the regular method. There is no carry over under the simplified method.

You may choose the simplified method or regular method for any tax year. Once you have chosen a method you cannot change the method for that same year. 

 

Tax Credits for Higher Education
Posted on 8/24/2013

 

As the new school year begins it is time to look at the ways you may be able to offset the cost of college available on your tax return. There are two tax credits available, The American Opportunity Credit and The Lifetime Learning Credit and also a Tuition and Fees Deduction.

The American Opportunity Credit – This credit is for the first four years of undergraduate studies. The American Opportunity Credit allows eligible taxpayers to claim a tax credit of up to $2,500 (100% of the first $2,000 of qualified education expenses and 25% of the next $2,000 of qualified education expenses) per eligible student per year.

Qualified education expenses include tuition and fees, books, supplies and equipment required for enrollment or attendance at a qualified educational institution.

The qualified education expenses must be for the taxpayer, taxpayer’s spouse, or dependent. The student must be enrolled at least half time in a degree program at a qualified education institution. 

The American Opportunity Credit phases out for single taxpayers with modified adjusted gross income between $80,000 and $90,000. For joint filers the credit phases out for taxpayers with modified adjusted gross income between $160,000 and $180,000. The credit may not be taken by married taxpayers filing separate returns.

Up to 40% of the American Opportunity Credit is refundable. Meaning that up to $1,000 of the American Opportunity credit can be refunded to you.

The Lifetime Learning Credit – The Lifetime Learning Credit is a nonrefundable tax credit of up to $2,000 per return (20% of up to $10,000 of qualified education expenses). Qualified expenses are limited to tuition and fees required for enrollment for the Lifetime Learning Credit.

The Lifetime Learning Credit applies to both graduate and undergraduate studies and is available for an unlimited number of years for both degree and non-degree programs. The student is eligible for the credit if enrolled in one or more courses at a qualified education institution. The education expense must be for the taxpayer, taxpayer’s spouse, or dependent.

The Lifetime Learning Credit phases out for single taxpayers with modified adjusted gross income between $53,000 and $63,000. For married taxpayer’s filing a joint tax return the credit phases out for taxpayers with modified adjusted gross income between $107,000 and $127,000. The credit is not available to married taxpayers filing separate returns.

Tuition and Fees Deduction – The Tuition and Fees Deduction is a deduction from income that allows taxpayers a maximum deduction of $4,000 for college tuition and related fees.

The Tuition and Fees Deduction is limited by income. The maximum deduction of $4,000 is available to single taxpayers with adjusted gross income up to $65,000. Married taxpayers filing jointly may claim the full deduction with adjusted gross income up to $130,000. The deduction is limited to $2,000 for single taxpayers with adjusted gross income between $65,000 and $80,000. For married taxpayers filing jointly the income range is between $130,000 and $160,000. The Tuition and Fees Deduction is not allowed when adjusted gross income is above $80,000 for singles or $160,000 if your filing status is married filing jointly. The Tuition and Fees Deduction is not allowed if your filing status is married filing separately. The Tuition and Fees Deduction may provide a tax benefit if you do not qualify for the American Opportunity Credit or The Lifetime Learning Credit. 

You cannot claim The American Opportunity Credit or Lifetime Learning Credit for the same Student in the same year. You also cannot claim either of the credits if you claim the Tuition and Fees Deduction for the same student.

 

Increase in the Medical Expense deduction Threshold
Posted on 8/15/2013

 

Among the tax law changes for 2013 is an increase in the Medical Expense Deduction threshold.

Beginning in 2013 the floor for deductible medical expenses increases to 10% of adjusted gross income, up from 7.5% of adjusted gross income that was in effect for previous years. There is an exception to the increase of the deduction floor for the years 2013 thru 2017 if the taxpayer or taxpayer’s spouse has reached age 65 before the end of the tax year. In this case the 7.5% of adjusted gross income deduction floor will be applied for the tax years 2013 thru 2017.

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