Sometimes Being Put Into a Box Has It Benefits: Key New IRS Tax Special Category Changes

Sometimes Being Put Into a Box Has It Benefits: Key New IRS Tax “Special Category” Changes

Among President Obama’s recent revisions to the tax code are several new categories as well as a host of changes to a number of current categories. Now that tax season has officially begun, tax professionals will want to ensure that their clients take full advantage of these changes.A� While some are minor, many are not. According to representative Daniel Reed, Chairman of the House Ways and Means Committee, these changes constitute “the first overall revision of our tax laws which has ever been undertaken.” These sweeping changes are already translating into content upgrades to many enrolled agent continuing education courses and tax CPE courses across the country, especially as tax professionals seek to better understand who benefits and who doesn’t.

New Benefits

Key areas for tax preparers to examine in terms of potential new benefits for tax payers include the following:


Can now use a new rule for computing tax exemption on annuities bought by themselves that allows a portion to be permanently tax-free.A� This portion is the yearly payment equal to the annuity’s total cost which is then divided by the total number of years of actuarial life expectancy

The taxpayer receiving a lump-sum payment under an annuity contract can figure the tax as if the sum had been paid in three installments over current and two preceding years.

Working Mothers

(Widowers and divorced or separated fathers) whose children live with them may deduct the cost of paying somebody to look after children less than twelve years old during working hours.

The maximum annual deduction is $600

The maximum deduction a working mother living with a husband can take is reduced by combined incomes exceeding $4,500


Retirees 65 and over get a brand-new tax credit amounting to 20% of their taxable income up to $1,200.

Wives 65 or over also get the 20% credit on $1,200 of her own income (or, in community-property states, on the next $1,200 of joint income).

Retired workers below the age of 65, who are under local, state and federal pension plans, also get this credit, but only on pension incomes.


The first $50 of any dividend income is entirely tax-free

The remaining 4% of all remaining dividends may be subtracted from the stockholder’s income tax

Sales & Salesmen

People who sell outside of their places of business may deduct incurred expenses from taxable income (regardless of if they take the standard deduction on their tax returns)

Writers & Artists

For a maximum of 36 months, writers and artists may spread back over the entire work period for production work that took 24 months or more

Additional Noteworthy Updates that May Help Your Clients

Beyond these special categories, taxpayers in general will find some tax relief due to the additional overhauling of the rules of the tax code. Whether through an enrolled agent course or continuing education tax course, tax professionals familiarizing themselves with these changes will stand out to clients especially as they save them even more money than expected.

Here are two of the most anticipated areas where these gains are expected.

Parents of Working Kids

Millions of taxpayers outside these special categories will find some degree of help in various changes rules to rules on dependents and deductions. One change in particular rewards parents with ambitious adolescents who work summers. Previously, parents lost an exemption when dependent children earned $600 or more during the course of a year. Now, provided parents cover more than half the child’s total support, a parent may continue to claim exemptions for children under 19 and older children who are full-time students — no matter how much they earn. Moreover, they can continue to mark exemption on their own returns.

Business Owners & Losses

Losses may now be carried back two years that are deductible against taxes

Regardless of the philosophical qualms over putting people into “special categories,” the fact remains that tax preparers are poised to help their clients find exemptions come tax time.A� With such a significant amount of changes to the tax code, many tax professionals are looking to EA CPE and specific tax continuing education courses that explore these new or changing categories.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.