Changes to the 2015 Tax Code You Should Know

Part 2 of 2

OIC

In addition to changes in the rules surrounding certain deductions, some popular tax breaks were extended this year beyond their initial expiration date. Here’s a look at some of them:

  • Higher education tuition deduction. You may still be able to deduct between $2,000 and $4,000 of qualified tuition expense. This deduction applies to an accredited post-secondary career school, college or university.
  • Energy credits. If you made energy-efficient changes to your home, you’re in luck. Enhancements such as improved insulation and  upgraded energy-efficient heating/cooling systems are eligible for the energy credit.
  • Educator expense deduction. If you are a K-12 teacher who dipped into your own funds for classroom supplies, you’re in luck. You could deduct up to $250.00 in unreimbursed classroom expenses. You must be a full-time teacher and work 900 hours per academic year to be eligible.
  • Commuting tax breaks. If you take mass transit to work, you could be eligible for a tax break much like those who have employer assistance to cover parking costs. The current deduction is $130.00 per month.
  • Deduction for small business equipment purchases of up to $2 million. This will come in handy if you decide to purchase/upgrade your business equipment. Eligible expenses now include computers and work stations.
  • Work Opportunity Tax Credit. If you own a business, good help can be hard to find, and expensive to hire (training and on-boarding expenses for example. However, Uncle Sam has extended the Work Opportunity Tax Credit. You’ll be eligible for a credit equal to a percentage of wages paid if you hire a permanent worker from any one of these targeted groups: TANF, SSI and SNAP clients, qualified veterans, qualified summer youth program members, vocational rehabilitation clients, to name a few.

Understanding changes to the tax code or extension for tax cuts will go a long way during tax season this year. Since each individual tax scenario is different, we recommend that you consult with a qualified tax pro. He or she will answer your questions, help you determine your eligibility for certain deductions and exemptions, and can even file on your behalf.

The start of tax season doesn’t have to mean unanswered questions and last-minute panic. As the old-school expression states, “Forewarned is forearmed.” The more you know in advance, the less likely it is you’ll be caught by surprise on tax day.

Don’t Overlook These 5 Tax Breaks

Freeimages/Paige Foster
Freeimages/Paige Foster

Don’t overlook these last-minute tax breaks

Part 3 of a 4-part series

Year-end tax planning may yield some pleasant surprises in the form of tax breaks you hadn’t thought of before. Take a look at these five possible tax breaks and see if they may be an option for you. 

Always check with a qualified tax pro to see if you meet the requirements for any of these tax breaks. 

1.  Earned Income Tax Credit (EITC): While this credit is only available if your income falls within the low to moderate range for your household size, don’t count it out if you’ve had some significant changes to your earnings this year. Those changes can include:

  • Job loss or layoff
  • Significant cut in pay or hours
  • Disability

If you’ve experienced any of these events this year, chances are you struggled with significantly less income than in prior years. Check with a tax pro to see if you are eligible for the EITC for this year. 

2.  Jury duty fees paid to employer: If your employer pays your full salary while you’re on jury duty, they may ask you to turn over your jury duty fees (paid to you by the court) when you return to work. 

Even though jury fees are  miniscule in comparison to your income,   the IRS still regards them as taxable income. Be sure to deduct those fees from your taxes, so you aren’t taxed on money that was passed directly to your employer. 

Be sure to save any statement or receipts verifying the jury duty payments.

3. State taxes you paid last year: If you ended up owing state income tax last year, be sure to include that amount on this year’s return as an itemized deduction. You may also include any estimated quarterly income taxes you’ve paid as well. 

4. Self-employed health insurance premiums: If you’re self-employed, you know firsthand that insurance coverage isn’t cheap. The IRS understands this and allows for self-employed workers to deduct insurance premiums for medical, dental and long-term care insurance. 

This deduction includes insurance premiums paid for yourself and your dependents. You can include this figure as an itemized deduction on Schedule A of your 1040 tax form. 

5. Protective clothing required for work: If your line of work requires you to wear protective clothing, you’re in luck. Items such as hard hats, goggles, work boots, and fire-retardant outer wear are just some of deductible items. 

There is a catch, however. The clothing items can’t double as street wear, and they must be required by your employer. You’ll deduct the cost of these items on Schedule A of your federal tax return. 

As with any deduction, always check with a tax pro to see if you’re eligible. 

These easily overlooked tax breaks can take the sting out of tax day. Gather your receipts and tax records, talk with a tax pro, and get ready to enjoy a lower tax liability for your 2015 taxes. 

What’s The Difference Between a Tax Credit and a Tax Deduction?

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vecezy.com

 

If you’re relatively new to filing taxes each year, chances are you’ve heard some terms that may seem interchangeable in the beginning. Two of the most commonly confused terms are “tax credit” and “tax deduction.” Here’s a look at both terms and how they’re different from one another.

Tax Credit

Unlike tax deductions (or “write-offs” as they’re common known), a tax credit doesn’t reduce your overall taxable income. It reduces your overall tax liability instead.

There are two types of tax credits: refundable and non-refundable. A refundable tax credit is one that will both reduce your overall tax liability and be returned to you in the form of a refund. The Earned Income Tax Credit (EITC) is an example of a refundable tax credit, and is available to you if you meet IRS income guidelines. Here’s how it works:

  • Let’s suppose you owe $2,000.00 in taxes. At the same time, you’re eligible for $3,500.00 in EITC. You’ll end up owing no tax at all once the credit is applied, and you’ll also receive the difference of $1500.00 as a refund.

On the other hand, a nonrefundable tax credit will only reduce your overall tax liability. A good example is the Child Tax Credit. If you qualify you can deduct a maximum of $2000.00 from your tax bill, but you will not receive a refund.

Tax Deductions

A tax deduction works differently in that it will reduce the taxable income you’ll need to report. Typical deductions include student loan interest, self-employment tax, child support, and moving expenses. Most people without kids will use the standard deduction, which is adjusted each year.

Tax deductions are subtracted from your gross income, which in turn lowers the income figure you’ll need to report on your tax forms. Here’s some math to demonstrate how it works:

  • Your total income: $30,000.00
  • The standard deduction: $6300.00 (if you’re single; see this chart for other filing statuses.)
  • Total taxable income: $23,700.00 ($30,000.00-$6300.00=$23,700.00)

You’ll only have to pay tax based on income of $23,300.00 instead of the original amount of $30,000.00 as seen in this example. Your outcome may vary depending on whether you choose to itemize your deductions, or take the standard deduction. You can’t do both, unfortunately.

Tax credits and tax deductions each have a different effect on your taxes. By understanding the differences between them, you’ll be better equipped to prepare your tax and understand your tax liability for a given year.