What You Need to Know About Electric Vehicle Tax Credits

electric vehicle creditThe information contained in this post is not intended to replace the advice of a qualified tax professional.

Chances are, you’ve seen electric vehicles while commuting to work or running errands. While electric vehicles (EVs) started off as niche purchases in large metropolitan areas, they are now seen in communities of all sizes.

Electric vehicles have gone mainstream, and they bring with them environmental and financial benefits, including a tax break for eligible vehicles.

Which Vehicles Qualify?

Popular vehicles such as the Fiat 500e, Ford C-Max, Ford Focus Electric, Nissan Leaf, Chevy Volt, and Tesla models S and X all qualify for the electric vehicle tax credit.

The IRS maintains a comprehensive list of eligible vehicles.

How it works

In a nutshell, most electric vehicles are eligible for up to a $7500.00 tax credit. As with any regulation, there are some caveats:

  • You must be the initial buyer. If you purchase a used EV, the tax credit won’t apply.
  • If you decide to lease the vehicle, the leasing company reaps the benefit of the tax credit since they are the owner of record for the vehicle. Auto finance companies have taken this into consideration when drawing up lease agreements and determining lease payment programs.
  • The tax credit applies to vehicles purchased for personal use only and not for re-sale.
  • Battery packs must be rated for at least 4 kWh and must be charged from an external source, such as a home charging station or public charging station. The tax credit increases in proportion to battery size.
  • No refunds: If you purchase an EV and owe $5000 in taxes for example,  your EV tax credit will be equivalent to your tax bill, even if the EV qualified for the maximum tax credit of $7500.00.
  • The program will phase out for each automaker that sells 200,000 EVs.

State-based incentives and credit are available

You can locate state-specific programs through the Alternative Fuels Data Center website. Programs vary from state to state and are based on income and date of purchase.

The IRS codes pertaining to the federal EV tax credit are complex, but by understanding the essential tenets of the EV tax credit, you’ll be in a better position to determine if owning an EV would be worthwhile.

Take a few moments during your car-shopping trip to determine if the EV you have in mind is eligible for the federal EV tax credit. You could end up with significant tax savings as well as peace of mind for the environment.

Tax Tips For Airbnb Hosts: Part 2

 

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The content of this post is not intended to replace the advice of a licensed tax professional. Consult a qualified tax professional for questions specific to your individual circumstances.

Let’s suppose you enjoyed renting your home through a peer-to-peer company such as Airbnb and would like to rent beyond the 14-day tax-free period. Here are some important tips to keep in mind as you expand your rental business.

Congratulations, you’re a business owner!

It is important to treat your rental activities as a business regardless of where they fall within the 14-day period.

Keep meticulous records. If you confine your rental activity to 14 or fewer days for the year, keep records of your rental income and any receipts. Rental companies are required by law to report any and all income to the IRS, so the IRS may in turn contact you, even if you rented your property for less than 14 days.

If this is the case, you will need to provide documentation of your rental activities verifying they fell within the 14-day rule. A reservation print-out or other form displaying the rental date(s) may be all you need.

As with any IRS correspondence, follow all instructions on the notice, and call the IRS if you should have any questions or can’t locate the documentation they will need.

For longer rental periods, keep track of your non-rental and rental days throughout the year. Detail the specific dates so you can more accurately track your rental income and expenses for those timeframes. You will also need to track your personal expenses for the time frames during which you’re not renting out your home.

Track all business expenses

The IRS allows you to deduct “ordinary and necessary” business-related expenses from your rental income. For example, if you buy patio furniture or other items for guests to use, you can deduct that expense against your rental income.

The same applies to major expenses such as mortgage interest. This is where detailed and accurate record-keeping is key in order provide accurate income and expense figures on your tax forms.

Pay self-employment taxes

As a small business owner, you will need to pay self-employment tax in addition to income tax. Self-employment taxes cover the Social Security and Medicare contributions based on your income.

If you want to side-step any “sticker shock” on tax day, set aside a percentage of your rental earnings to cover self-employment taxes. The total self-employment tax rate is currently 15.3 percent.

Get to know your  state and city occupancy tax rules

While Airbnb, FlipKey and VRBO have evoked controversy in some large cities, these rental activities are welcomed in other communities. Check with your city’s occupancy tax requirements and terminology, as it varies from state to state.

While Airbnb may collect and submit these taxes in certain states, it’s best to confirm the rules, rates and regulations that apply to your state or community. In some cases terms such as “hotel tax” “transient lodging tax” may be used interchangeably with “occupancy tax.”

Airbnb and similar peer-to-peer rental companies allow travelers to forgo expensive hotels and to stay with a local resident instead.

Hosts reap the benefits of the additional income and showing off their community to out-of-town travelers. By fully understanding the basics of property rental, you will have the opportunity to decide in advance if hosting Airbnb guests is a worthwhile activity.

 

 

Tax Tips For AirBnB Hosts: Part 1

 

airbnb

 

The peer-to-peer or “sharing” economy has made it easier for individuals to pick up some extra cash. One of the most popular peer-to-peer platforms is Airbnb. Guests get to stay in a private home anywhere in the world, and hosts reap the benefits of the extra income.

If you’re considering renting out your home to Airbnb guests, there are some tax implications to be  aware of before diving into your host role. Keep these tips in mind so you don’t run afoul of the IRS.

The 14-day rule

Simply stated, the 14 day rule stipulates if you rent out your home for 14 or fewer days throughout the year, you don’t have to report the income to the IRS or pay income tax on those earnings.

At the same time, you must also utilize the property for your personal use at least 10% of the total days that you rent out the property.

Same goes for if you’re renting out a room. Keep it under 14 days, and you won’t have to report the income.

The downside to the 14-day rule? You also can’t take any tax deductions for any expenses incurred during the rental period. If you rent out your home for 7 days on Airbnb and decide to make some minor improvements to the property, you can’t deduct those expenses on your tax returns.

File that W9

If the rental company doesn’t offer you a w9 form when you initially agree to become a host, you can download one here. Fill it out before hosting your first guests and return it to the company office.

The rental company could withhold up to 28 percent of your earnings without it, so it makes good business sense to file your W9; your overall withholding will end up being more reasonable than the 28 percent you’ll pay without filing a W9.

Deduct those guest-service fees

Rental companies such as Airbnb, FlipKey and VRBO charge guests a percentage of the rent as a guest services fee or host service fee.

When you receive your 1099 at the end of the year that states your rental earnings, you will also see the total amount of guest-service fees. Be sure to deduct this amount from your rental income on your tax returns.

Part 2 on Friday will cover more tax tips for Airbnb hosts.

 

Teen Taxes: What You Need To Know About Your Teen’s Summer Job

summer job

 

Taking on a summer job is a rite of passage. Most of us at one point or another in our teens worked fast food, babysat, mowed lawns or delivered newspapers to earn pocket money.

You might find your son or daughter creating their own business or taking on more traditional summer jobs. Either way, having a working teen in the family can affect your taxes.

Working in the family business

Gone are the days of kids working as free labor on the family farm. If you own a sole proprietorship or partnership, having your teen spend the summer working for you gives him or her a taste of business ownership, and gives you some tax breaks.

If your teen is younger than 18, you won’t have to withhold FICA taxes from their pay. You are also exempt from paying federal unemployment tax until your teen turns 21.

Claiming a working teen as a dependent

You can still claim your employed teen as dependent if they meet the following criteria:

  • They must live with you for more than half the year and
  • They don’t provide more than half of their own financial support year-round

If your teen files their own tax return while you are still claiming them as a dependent, they can’t claim their own personal tax exemption on their tax returns.

Self-employment

If your teen passes up traditional summer jobs in favor of self-employment, running their own business can bring them the flexibility and satisfaction typically not found with most summer jobs.

This rule also applies if they earn more than $600.00 working for someone else as an independent contractor, regardless of whether or not the employer issues a 1099 form at the end of the year.

Although a self-employed teen may not earn enough to be subject to federal income taxes, they may still be liable for self-employment taxes at the rate of 15.3% of their net profit.

Taking on a summer job is a good way for teens to save toward a car or for college. Teens aren’t just limited to babysitting or cutting lawns any longer. With the expansion of technology comes a host of job opportunities for teens, in addition to a more flexible work model.

Regardless of which path your teens takes to summer employment, being aware of the possible tax implications for both you and your child will eliminate some stressful tax-related surprises at the end of the year.

As with any tax matter, enlist a qualified tax professional who can answer questions regarding your specific tax scenario, and who can help your teen with their tax-related questions.

Top Tax Breaks For Young Adults

Young adults, tax breaks

 

If you’re currently a college student or have just started out in the workforce, you may think you’re not eligible for any tax breaks, especially if you’re single with no kids.

There are several tax breaks available for young adults and they can help reduce your overall tax liability at the end of the year. Sure, they’re not as generous as the tax deductions available to your friends with kids, but they can still reduce your overall tax liability.

Savers Credit: If you’re stashing money away into an IRA or employer-sponsored 401K, you’re in luck. You’ll receive a tax credit of up to $1,000. You’ll get a year-end statement from your employer’s 401K administrator or your IRA administrator verifying the amount you stashed away in savings.

The Saver’s Credit  only applies if you’re earning $45,000 or less each year.

Lifetime Learning Credit: You may be eligible to deduct up to $2,000 in education-related expenses. This credit applies to any undergraduate, professional or graduate study at an accredited institution.

Taking courses for the sole purpose of strengthening your job skills? You can also deduct related expenses for these courses.

American Opportunity Tax Credit: If you’re in your first four years of post-secondary education, you’re also in luck. You can deduct up to $2500.00 of your education-related expenses each year while in school. Keep track of your receipts for textbooks, tuition, educational software and any other education-related expense.

Self-employment: Whether you’re driving for Uber or renting out rooms on AirBnB, side gigs are a great way to bring in some cash. Unfortunately, the IRS regards these activities as self-employment, so you’ll be subject to self-employment tax.

One way to reduce the sting of these extra taxes is to keep record of all of your business-related expenses. Keep all receipts for fuel, supplies, advertising materials and other business-related expenses.

If you earned more than $600.00, the employer (Uber, for example) will issue you a 1099 Misc. form at the end of the calendar year. In the event they don’t issue a 1099, you will still need to claim the income on your tax returns.

Job search expenses: If you are looking for work within your industry, you can deduct your travel, meal and lodging expenses if your job search took you 50 or more miles from your home.

The same goes for moving expenses. If you landed a new job at least 50 miles from your current address, you can deduct your moving/relocation expenses. This includes transporting your furniture, clothing, and other possessions. You can even deduct the cost of transporting your pets.

You can also deduct mileage expenses at the rate of .19 per mile.

If you’re in college or just starting out, you may think you’re not eligible for any tax breaks, but there are tax deductions that are available to you right now. Remember to keep track of any related documentation to support your deduction, such as mileage records and receipts for expenses.

As with any tax matter, if you’re not sure of the tax breaks available to you, check with a licensed tax preparation professional who can determine your eligibility and answer your questions. You’ll be glad you did when it comes time to file your tax return.

 

 

 

 

It’s Never Too Early To Get Ready For The 2017 Tax Season

tax season

 

April 18 is almost a distant memory for most of us. Tax returns or extensions are filed, documents stored, and refunds are on their way to our bank accounts if not received already.

If tax season 2016 was too hectic for your tastes, there are ways you can prepare for a smoother 2017 tax season by preparing early. Mid-year is the perfect time to assess your individual tax scenario.

Keep track of these milestones:

  • Birth or adoption of a child
  • Marriage or divorce
  • Transferring or relocating for work
  • Change in military status or activity
  • Death of spouse
  • Receiving lump sum distributions, inheritances or settlements
  • Starting or selling a business
  • Establishing a home office
  • Significant medical expenses not covered by insurance
  • Job search expenses, including mileage, lodging and relocation expenses
  • Collecting Social Security, Unemployment or Social Security Disability Insurance benefits

Each of these milestones will affect your tax status for 2017. Now is the time to consult with a tax pro who can advise you on the best tax strategy for these life events.

Understand the updated tax laws for 2017

Tax laws change frequently at the state and federal level. These changes can include:

  • State tax regulations
  • Itemized deduction allowances
  • Changes in tax credit programs, eligibility or regulations
  • Changes in trust and estate regulations
  • Retirement account contribution limits
  • Income limits for contributions to a Roth IRA

You can begin researching these changes through your state revenue department website, IRS.gov website, or community resources such as  workshops or lectures.

You’re not alone, however, if you find the language of these regulations confusing or difficult to understand. Always enlist a qualified tax pro if you need clarification on any tax matter, particularly changes in tax laws or regulations.

If you are a low wage earner, disabled, or a senior, you can access basic tax advice through the VITA program beginning in January of each year. Trained volunteers will assist you with any basic tax questions as well as provide tax filing assistance.

File early

Identity theft and tax  fraud are on the rise. Filing early in the tax season will prevent an identity theft ring from attempting to file a fraudulent tax return under your name and social security number.

Last but not least…

Organize your tax documents throughout the year. If you haven’t done so already, set up a filing system for your paystubs, receipts, freelance/side job income, medical/dental expenses, and home office expenses.

There are also many spreadsheet and basic bookkeeping programs and apps available to help you keep record of your income, expenses and deductions throughout the year.

Staying organized year round will eliminate the last-minute rush to gather paperwork and records on tax filing day, making things easier for you and for the tax pro who will be filing your return.

Mid-year is a perfect time to prepare for the 2017 tax filing season. Make note of any significant life change, stay current on changes to tax laws and regulations and file early in 2017.

Reporting Tips To The IRS

tip income

 

Most of us at one point in time or another pick up a side job. With the pressures of bills or emergency expenses facing us, it makes sense to earn some extra income.

If your side job also includes receiving tips from customers, it’s important to understand the “hows” and “whys” of reporting tip income.

The IRS requires taxpayers to report ALL income, including tips. You are required to report your tips if:

  • You earn more than $20.00 in tips. Report the initial $20.00 plus anything over and above that amount.
  • Tips are not included as a required gratuity or service charge instituted by your employer.
  • If you have a slow month and don’t earn $20.00 in tips, you don’t need to report any tip income you do receive, as long as it is under the $20.00 threshold.

If your employer has attached an automatic gratuity or service to their price structure, you do not need to report that gratuity, even if your employer distributes the service charge or gratuity to you and other employees.

For example, if you’re have a side job as a limo driver and your employer adds a 5% gratuity to their rates, you do not need to report your share of the gratuity as tip income.

On the other hand, if at the end of the night, your customer tips you $50.00 for a job well done you will need to report the cash tip.

Tips can also be in the form of credit card charges, cash, gift cards, transit or event passes, and other gifts instead of cash. You do not need to report the value of non-monetary tips.

How to report your tips

You will need to get the IRS 4070 form from your manager, payroll department or HR department. Fill it out with all the required information  and return it on or before the 10th of each month.

Your employer will then take the standard deductions for taxes and social security just as they do for your regular pay.

Why to report your tips

As with any tax matter, the IRS will assess penalties for withholding or under-reporting information, especially your income.

While it may be tempting to not report your tips in order to get caught up on expenses or to save for a vacation, it is essential that you report tip income.

If you choose not to report your tip income, you could face penalties and fines for failure to report all of your income. Consequences can include a penalty equal to 50% of the applicable payroll taxes on the tips. This penalty will be in addition to any unpaid taxes you owe.

In addition, accurately reporting your tips will ensure that you receive the correct amount of Social Security and Medicare benefits once you become eligible.

Keep accurate records of your tips since you will also need to report them at the end of the year when you file your tax return.

Fill out the IRS 4070 form, and return it to your manager or payroll department on the 10th of each month. Doing so will ensure that you are accurately reporting your income to the IRS.

 

Did You Work For Cash In 2015? Check Out These Tips

If you worked for cash in 2015, here are some important tips

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Note: The advice in this post is not intended to replace the advice of a qualified tax preparer. Always seek professional input before preparing your own taxes.

Most of us at one time or another earn extra cash with a side gig. While this can help your bottom line, there are tax implications.

The 1099 form: If you worked for an individual or organization for cash, they must issue you a 1099 form if you earned over $600.00. You will need to report your earnings on your income tax form under “Misc. income.”

In some cases, a client or employer who paid you cash will go ahead and issue a 1099 even if you earned less than $600.00. This is preferable because record-keeping will be easier for you and there will be less chance of errors in reporting your income.

Either way, employers must mail out these forms  no later than January 31st, so if you have not yet received yours, follow up immediately with your client or cash employer.

Why the 1099 is important: If there is a discrepancy between the earnings you reported to the IRS and the earnings reported by your client(s) and employer(s), processing your tax return will be delayed, along with any refunds.

At the same time, if the employer doesn’t report your earnings to the IRS, they, too, could face additional scrutiny and delays.

At the very least you’ll receive a letter from the IRS requesting correct information. At the very worst, it can trigger an audit or review.

If you’ve kept track of your earnings from each client and employer, be sure their income figures match your records.

Income and expense records: If you earned cash from a side gig in 2015, you’ll not only need to report your income, but you will also need to report your expenses.

Your tax preparer will attach either Schedule C or C-EZ to your tax return. If you are taking the DIY approach and filing your own taxes, you’ll need to complete Schedule SE to calculate your self-employment tax.

Keeping accurate income and expense records is key to filing an accurate return as well as calculating the correct amount of taxes you will owe. There are many apps and software programs that can help you track income and expenses such as Quickbooks, Harvest, or Excel.

Estimated Taxes: The amount of estimated taxes you may need to pay this year are based on your earnings in 2015. These taxes can be paid in quarterly installments or all at once. Your tax preparer can calculate your estimated tax.

Working for cash is a great way to help make ends meet. If 2015 was your first tax year working for cash, tax day will be different for you than in years past.

Have your taxes done by a professional and bring all of your 1099 forms, income/expense records, and any other documentation your tax preparer requests from you.

Don’t let the prospect of paying self-employment taxes scare you. Your tax preparer can help you in determining your estimated tax for this year.

You’ll avoid “sticker shock” and will be able to stay on top of your taxes. You’ll also avoid over-paying estimated taxes so you can keep the money where it belongs: with you.

By keeping accurate income and expense records you can make your side gig work for you and not for Uncle Sam.

 

 

 

Need Tax Filing Assistance? VITA Can Help

Tax filing assistance with VITA

Get tax filing assistance from skilled VITA volunteers


Tax season is upon us, and if you’re in need of tax preparation assistance, you’re in luck. The IRS offers two volunteer-based programs to qualified taxpayers.

VITA (Volunteer Income Tax Assistance) provides tax filing assistance to any taxpayer who meets any of the following criteria:

• Earn $54,000 or less per year
• Disabled
• Limited English proficiency speaker and will need help in reading and interpreting tax forms and tax return instructions.

VITA sites are found in community centers, shopping malls, senior centers, libraries and other community gathering spots. IRS-trained volunteers will help you file a basic tax return at no charge to you.

To locate a VITA site, call (800) 906-9887 or use the online locator to find a site near you.

Help For Taxpayers Over 60

If you’re over 60 and have retirement or pension-related tax concerns, the TCE (Tax Counseling for the Elderly) program is available to you.

IRS-trained volunteers, in cooperation with the AARP Foundation will assist you in preparing and filing a basic tax return, much like they do in the VITA program.

To find the nearest TCE site, call (888) 227-7669 anytime between January and April to find the nearest site and/or to schedule your appointment.

To locate a TCE site online, use the AARP Tax Aide locator.

Getting Organized is Key

Regardless of which program you choose, getting organized ahead of time is essential to filing an accurate and timely return.

Limited-income taxpayers, disabled taxpayers and those with limited English skills are welcome to participate in the VITA program. Older taxpayers also have access to IRS-certified volunteers to help them file their tax returns.

If you are in any of the above groups and prefer to self-file, just look for the “self prep” designation in the VITA/TCE site listing.

New (Tax) Year’s Resolutions

Untitled design(3)As 2015 winds down, tax season is gearing up. Here are some great ways to make sure things are looking up for you tax-wise in 2016.

1. Resolve to e-file

Electronically filing your tax return, or e-filing, has its rewards. No lost paperwork in the mail, no IRS employee errors as they manually process your return, and a faster turn-around for refunds. By e-filing your return, your information is transmitted directly to the IRS. A tax pro can e-file on your behalf, or you can take the DIY approach with many of the e-filing options available to consumers.

2. Know what you’ll owe

If your income changes considerably in 2016, chances are you’ll be facing a higher tax bill for 2016. Income sources such as bonuses, IRA distributions, purchase contracts, settlements, and certain gambling winnings can all nudge you into the next highest tax bracket.

Prepare in advance, if you can, by setting aside enough money in your savings account to cover the increased tax bill. By doing so, you’ll lessen the “sticker shock” on tax day, and can take care of your tax bill in one lump sum. By doing so, you’ll avoid penalties, fees, and possible hassles in dealing with the IRS.

A qualified tax pro can be of great help at a time like this, and can advise you in taking the steps necessary to address your higher tax bill in 2016.

3. Ask for help

If you’re facing back taxes, IRS collection actions, a large tax bill, or any other serious tax matter, 2016 is your year to ask for help. Very few people are equipped to wade through IRS tax code and to interpret and apply those regulations to their own tax scenario.

Enlisting a qualified tax pro to help you assess your individual tax matter can pay dividends in terms of peace of mind and a clearer idea as to what the IRS is requesting from you. A tax pro will help you understand complicated IRS tax code as it applies to your circumstances, and can advise you of the best course of action to take in dealing with the IRS.

The end of 2015 doesn’t have to mean the start of tax headaches in 2016. By e-filing, understanding how much you’ll owe and asking for help,  you can get ahead of the stressed-out masses waiting til the end of 2016.

By resolving to get a fresh start in the new tax year, your tax outlook for 2016 could look much brighter.

If you’re facing a serious tax issue, resolve to take charge by calling us at (888) 224-3004 or by clicking the white “Start Chat” button at the top of our homepage. We have qualified tax pros on staff who can help you make sense of your back taxes, IRS collection, or other serious tax matter.