Timing Is Everything: 11 Key Triggers To Keep In Mind For The 2013 Tax Year

Posted: Dec 23 2013, 5:11pm CST | by , in News

Timing Is Everything: 11 Key Triggers To Keep In Mind For The 2013 Tax Year
Photo Credit: Forbes

At year end, there is often a flurry of advice about making income and deductions count for the year. The general consensus tends to be that nearly everything needs to be wrapped up by December 31. While December 31 is certainly a key date, it’s not the only date to keep in mind: details matter and the fine print is important. Follows is a quick summary of 11 key triggers that can affect your 2013 tax return:

  1. When figuring your taxable wages and certain self-employment income , the key date to remember for most taxpayers is December 31. Income received by you as of that date is taxable for 2013. For federal income tax purposes, the term “received” includes not only checks or other forms of payment you redeem but also checks or payments which you could redeem but choose not to. In other words, putting your check in a drawer until January doesn’t push off that income to 2014: it’s still taxable as of the date it was made available to you. The same logic extends to third party payers or internet payments: leaving it in your PayPal account until next year doesn’t mean it’s any less taxable in 2013.
  2. Similarly, for cash-based taxpayers (that’s most of us), if you perform services in 2013 but are not paid until 2014, it’s not income until 2014. This can be confusing since those 2014 paychecks often reference those 2013 work dates. Additionally, since the Internal Revenue Service likes to match items of income with deductions, those same wages may not be deducted by the employer until 2014: employers may only deduct payroll expenses when paid (and no, backdating checks isn’t okay).
  3. December 31 is also a key date for medical expenses: you may only deduct the medical expenses that you paid during the tax year. It does not matter when the services were provided. In other words, payments made in 2013 should be figured when calculating your 2013 taxes even if those payments are for services performed in 2012 (hospitals are notoriously bad for billing late) or if they’re payments in advance. So yes, that means there is an advantage to scheduling those last minute check-ups now. Keep in mind that the timing for the deduction is tied to the original payment to the service provider: if you borrow money or pay off expenses with a credit card, you claim the entire deduction in the year you made the payment to the service provider, not when you pay off the balance to Visa.
  4. So-called Section 179 (cleverly named after the section of the Tax Code) expensing allows a business to deduct the full purchase price of equipment which is purchased, financed or leased in one year rather than depreciated over a number of years. There is an important catch, however: the equipment must also be placed into service in the same tax year. That means, then, for the 2013 tax year, any applicable section 179 equipment must be purchased, financed or leased and placed into service between January 1, 2013 and December 31, 2013. Unlike certain other deductions, you may not simply pay for the product by year end and pick it up in the new year.
  5. You can deduct real estate taxes for almost any state, local, or foreign taxes paid on your real property. You take the deduction in the year that those taxes are actually paid, not the year for which the taxes were due. This means that any back taxes you paid during 2013 are deductible in 2013, as well as any prepayments for 2014 taxes. If you pay by check or credit card directly to the taxing authority, this is easy to figure. But pay attention: if your mortgage payment includes amounts escrowed for real estate taxes, you may not deduct the entire amount paid into your escrow account but rather the amount actually paid out of the escrow account during the year to the taxing authority. Your bank or other financial institution should have those figures.
  6. You can also deduct state and local income taxes paid during the tax year. That includes not only state and local income taxes withheld from your wages during the year (you’ll see those on your federal form W-2) but also any estimated taxes you paid to state or local governments during the year, and any prior year’s state or local income tax you paid during the year. Again, as with real estate taxes, the key date is when the taxes were paid, not when the taxes were accrued.
  7. Sales for purposes of capital gains (or losses) are determined as of the date of sale, not the date that you take the cash. This can be confusing for taxpayers who are offloading stocks and other securities at year end. If you sell a capital asset, the gain or loss is reportable in the year of sale, even if you don’t withdraw the funds from your account and even if you roll those funds into another asset.
  8. Charitable donations must be made by the year end to qualify for a tax deduction in 2013. As with medical expenses, the donation has to actually be paid – not merely pledged – to count. This includes donations which you pay by check so long as the check is really in the mail and all donations paid by credit card as of December 31.
  9. Making contributions to retirement accounts are a great way to reduce taxable income for 2013 – and to sock money aware for the future. When it comes to 401(k), 403(b) and similar plans, you must make your contribution by December 31 in order to make it count for 2013.
  10. The rules for individual retirement accounts (IRAs) are a little bit different than those for 401(k) plans. If you plan to open a new IRA or contribute to an existing IRA and make it count for 2013, you can do so as late as your 2013 tax filing date, which is April 15, 2014.
  11. For federal income tax purposes, your marital status for the tax year is determined by state law as of the last day of the tax year. For your 2013 tax return, that means December 31, 2013. It doesn’t matter if you were single from January 1 through December 30, 2013: if you are married as of December 31, 2013, you are considered married for the year. Similarly, if your divorce is final as of December 30, you are no longer considered married. It does not matter what your marital status for any other day of the year with limited exceptions, including those for widows and widowers. It also doesn’t matter how married you feel, including engagements, partnerships and really, really long relationships or what your Facebook status says (hint: the IRS has no equivalent box for “it’s complicated”).

Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel. You can also subscribe to the podcast on the site or via iTunes (it’s free).

Source: Forbes

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