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Preparing Your Taxes

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  • For upper-income filers, there's a new 3.8 percent Medicare tax on investment income over the adjusted gross income threshold amount as a provision of the Affordable Care Act. If you're single, the threshold amount is $200,000; married and filing jointly, it is $250,000. Your net investment income (interest, dividends, annuities, investment gains and the like) that is greater than the threshold may be subject to the 3.8 percent tax.

  • The Medicare-funding hospital insurance tax rose by 0.9 percent to 1.54 percent for high earners, another provision of health care reform. The increase applies only to wages and net self-employment income that's in excess of $200,000 for single taxpayers and $250,000 for those married and filing jointly.

  • Flexible spending accounts now have a $2,500 annual cap for the first time. These pretax accounts, used to pay for family medical expenses, had no federal caps previously, although most employers had imposed a $5,000 cap.

  • The maximum federal rate on long-term capital gains remains at 15 percent for most filers.

  • The alternative minimum tax exemption amount is $51,900 (or $80,800 for married couples filing jointly).

  • College tuition breaks were extended. Through the American opportunity tax credit, families can take a credit of up to $2,500 in related expenses.

  • The child and dependent-care credit remains at a maximum 35 percent of $3,000 ($1,050) in qualified expenses for one dependent grandchild, or a spouse who needs care while you work, and 35 percent of $6,000 ($2,100 for two or more).

  • IRA owners age 70-1/2 can distribute from their IRAs up to $100,000 tax-free, as long as it's sent directly to a charitable organization. (This makes more sense for higher-income folks — some of their itemized deductions will be lost because of the deduction phase out starting this year, but the IRA distribution to a charity is 100 percent tax-free). The distribution can also be used as part or all of the annual minimum required distribution from IRAs.

Now that you're focused on filing your tax return, Mark Steber, chief tax officer with Jackson Hewitt Tax Service, says it's a good time to remind people to throw away their returns after about three years.

"If there's no fraud involved, the IRS can go back and look at returns for only three years, unless there is a gross understatement of income or fraud," he says. "Destroying old records and returns minimizes the risk of identity theft."

As always, check with your tax adviser for guidance regarding your personal situation.

Carole Fleck is a senior editor at AARP Media.

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Former U.S.Treasurer Anna Cabral talks about how easy it is to get involved with the AARP Foundation's Tax-Aide volunteer program.

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