Expiring Tax Provisions and Steps to Take Before the End of 2013

Tax Deductions and Credits

As the year comes to a close, our thoughts turn to — taxes? You mean, with everything else there is to do, we need to think about taxes too? Yes, if you plan to take advantage of some of the tax provisions for which the curtain goes down at midnight on December 31, here are a few of the expiring tax provisions, and some ideas about what you should do now.

Optional state and local sales tax deduction. If you itemize your deductions, 2013 is the last year you can choose to deduct the sales taxes you paid during the year instead of state income taxes. This provision has been a boon for residents of states with no state income tax, such as Washington and Texas.

It also benefits people who have paid relatively little in state income taxes but who have spent a great deal on sales taxes during the year. If you bought a new car during the year or something else really expensive such as a boat, your sales tax deduction may be much greater than your state income tax deduction. If you are considering buying a new car soon, you might save taxes by seeing your car dealer for a test drive now. If you strike a deal, you can welcome in the new year with new wheels and a big fat sales tax deduction.

Tuition and fees deduction. If your income is less than $65,000 ($130,000 on a joint return) you can deduct up to $4,000 of tuition and school-related expenses, even if you don’t itemize your deductions. If your income is higher but less than $80,000 ($160,000 on a joint return), you can deduct up to $2,000.  But 2013 is the last year for the deduction, so if you are a student and your tuition and school expenses that you’ve paid in 2013 are less than the deductible amount for the year, consider prepaying next semester’s tuition before the end of the year to maximize the deduction. If you wait until next year to pay the tuition, you will miss out.

School teacher supplies. School teachers who ante up for books, supplies, computer equipment and other materials to use in their classrooms are able to claim a deduction for up to $250 with the Educator Expense Deduction, even if they don’t itemize deductions on their tax returns. Unless this deduction is extended by Congress, it is set to expire at the end of 2013. So if you are a school teacher and haven’t yet reached that $250 limit, take advantage of holiday sales prices to stock up on supplies you need for your classroom.

Check back for more tax deductions and credits set to expire this year so you can make some smart tax savings moves before the end of the year.

Comments (13) Leave your comment

  1. I file jointly with my husband. Each year we are subject to the Alternative Minimum tax. Does this do away with our exemption credits and do we get any of our itemized deductions under this tax? I am trying to determine how to mimimize what we have to pay under this tax, but it is so convoluted that I can’t determine what areas it impacts.

  2. Our son is on his 3rd year of college and we paid approx. $5,000 this year for tuitions. Will we get a larger deduction on our 2013 taxes if we pay next semesters tuition of $4,000… thus paying $9,000 rather than $5,000? Our AGI is around $106,000.

    1. Hi Leigh,
      Since your expenses are already at the maximum of $4,000 you would not get a larger deduction. This would only be for those that did not reach the maximum and that qualify.
      Thank you,
      Lisa Greene-Lewis

  3. Do I need Deluxe or Premier? Have been using Premier, but taxes will be much simpler for 2013. Am retired, income is SocSec, pensions, bank interest, small amount of dividends, and we converted some traditional IRA money to Roth. Also, have some remaining AMT carryover from previous years that is in 2012′s Premier documentation. We will be taking the standard deduction. Will Deluxe handle these items? Thanks.

  4. Let me understand this clearly. I live in Nevada which has no state income tax and I have been able to deduct state sales taxes in the past. Are you clearly saying that starting for the tax year 2014 one can NOT deduct state sales taxes from our federal income taxes? I know what you wrote, but I just want it confirmed in clear language again as I have heard nothing about this before and I am thinking of buying a new car and would hate to miss out on large deduction. Thank you, Ed Adler

    1. Hi Adler,
      Yes, unless Congress decides to extend the tax provision allowing taxpayers to deduct state sales and local taxes, you would not be able to deduct the sales tax on your purchases after December 31, 2013. So far I have not heard that this is going to be extended.
      Thank you,
      Lisa Greene-Lewis

    1. Manual, your medical expenses will have to exceed 10% of adjusted gross income before you can claim a dime. And, then your itemized deductions have to exceed the standard deduction before you can itemize. If you want your medical expenses to be tax free, consider an HSA qualified health insurance plan. Even if you don’t pre-fund the HSA, you can still make your medical expenses tax free by running them through your HSA account (i.e. depositing the money and then reimbursing yourself). This doesn’t work with premiums but if you are self-employed, you may be able to take a self-employed health insurance deduction for the premiums.

    2. Hi Manuel,
      The amount needed varies from tax return to tax return. You will need to have un-reimbursed medical expenses of more than 10% of your income. For example, if you make $30,000 per year, you need more than $3,000 in medical expenses.
      Mary Ellen

  5. Don’t forget the Qualified Charitable Distribution (QCD) from a regular IRA. Compared to making a direct contribution from your checking account, after withdrawing money from IRA, it reduces your Adjusted Gross Income, which might give you higher medical deduction.

    1. Yes, Bob you are correct. That expiring provision is in part two of the series regarding this topic. Stay tuned this week.
      Thank you,
      Lisa Greene-Lewis

      1. What is the IRS form that the donor has to fill out and does the bank have to fill out any special forms. Thanks

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