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. 

Essential Tax Tips For First-time Landlords

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If you recently became a landlord with your first rental property, chances are you have questions regarding handling rental-related taxes. Although you should always check with a qualified tax pro during your first year as a landlord, there are some tax basics you should become familiar with.

Most of the tax deductions are related to the normal operation of a rental. Here are some of the deductible items:

  • Repairs: The costs of repairs can only be deducted if they were performed to restore the property to its original condition. Some examples would be replacing locks, repairing leaky pipes, fixing broken windows or window locks.
  • Home office: This one can get complicated, as the IRS has a strict definition of “home office.” What this means is you’ll be able to take the deduction only if you have a dedicated space in your home for regular and exclusive home office use. In other words, if you take your laptop into the bedroom to balance receipts, bill vendors and conduct other rental-related business, you cannot take the home office deduction for your bedroom.
  • Mileage: The IRS offers landlords the opportunity to either deduct specific expenses (cost of gas, car maintenance) related to driving to and from the property or to property-related legal disputes, or taking the standard mileage deduction that’s offered each year.
  • Depreciation: This can catch you off guard, especially if this is your first year as a landlord. You can deduct the cost of repairs. At the same time, you can’t deduct the cost of any improvements made to the property. According to the IRS, a repair is considered an improvement when it adds value to the property, rather than restoring it to its original condition.  In this case, the costs must be deducted slowly over a period of years, also known as depreciating those costs. If you are fortunate enough to sell the property for more than its present value, you will need to “recapture” some of the depreciation you deducted earlier. This might lead to a higher tax bill in some cases, depending on your overall financial picture for the year.

While becoming a landlord for the first time can be rewarding, there are tax issues involved that could throw you for a loop if you’re unprepared. Always consult with a tax pro at some point during the tax year to make sure you’re on the right track. Keep organized records and receipts for any rental-related expenses, including court costs in case you needed to evict a tenant.

By keeping careful records and checking in with a tax pro, you’ll get your role as a landlord off to a solid start for the present year and for years to come.

 

 

 

 

 

Tax Tips For First-Time Filers

Filing taxes for the first time can be confusing, especially if you were included on your parents’ tax returns before this year. Here are some tips to make the process easier for you:

  • Clarify your dependency status. If you made very little money or are a full-time student receiving financial support from your parents,  they can still claim you as a dependent on their return. In that case, you won’t need to file your own return. Check with your parents before you file your first return.
  • Get organized. If you’ll be filing your own return this year, you’ll need either your W2 form from your employer, or your 1099 if you’re an independent contractor. Your clients will issue you a 1099 form if you earned over $600.00 from them.
  • Gather all of your forms. In addition to your W2 or 1099 forms, you’ll also need you student loan interest statement, receipts for any medical/dental expenses, copies of utility bills and business-related expense receipts (if you work from home), and the 1098-I form issued by your bank for any account interest that may have accrued during the tax year.
  • Know your deductions. If this is your first time filing independently of your parents, you can still qualify for tax deductions such as the standardized deduction or the Earned Income Tax Credit (EITC) deduction, for example.
  • Choose how you wish to file. Many first-timers have their tax returns prepared and filed by a tax pro the first time out. You can either use the same tax professional as your parents, or you can locate a reputable tax filing company right in your local community. You may also file the forms by snail mail; many essential tax forms and instruction booklets are available at the local library or online. If you elect to file your returns online, there are many reputable online tax sites.
  • File on time. The IRS starts accepting tax returns beginning the second or third week of January, all the way until April 15th. Returns filed after April 15th will be considered past due, so it’s in your interest to file on time. If you file past the April 15th deadline, you could end up paying a late penalty.

Filing your returns the first time out can be confusing if you’re not prepared in advance. Gather all the needed records and form, and decide which tax filing method works best for you. No one really looks forward to filing their taxes, but it can be much less of a hassle once you understand the basic process and keep accurate records.

Regardless of how you choose to file, be sure to file on time to avoid late filing penalties and fees.

How To Calculate Your Tax Bracket

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It might seem the IRS randomly assigns our tax brackets, but the agency actually use a very straightforward method to calculate your tax bracket. Understanding your tax bracket will help you to better prepare for tax day and to learn ways to reduce your overall tax liability for the future.

Factors That Influence Your Tax Bracket

Your tax rate is based on several parts of your tax scenario, including your filing status, number of dependents, your gross income, and eligible tax deductions.  You have the option of choosing from one of the five tax filing statuses: Single, Married Filing Jointly, Marred Filing Separately, Head of Household and Qualifying Widow(er).  Each status carries a specific standard deduction amount, which can reduce your taxable income. Your tax rate is also influenced by the number of exemptions you can claim.

In addition, there is an exemption amount for each eligible dependent claimed on your taxes each year.

Your tax bracket is also influenced by your gross income and allowable deductions. The IRS takes your gross income and subtracts your eligible deductions to arrive at your taxable income for that year. Your tax rate will be based on the remaining amount of income after subtracting your deductions.

Figuring Your Tax Bracket

OK, on to the math:

1. Total your gross income from all sources: earnings, self-employment income, interest, dividends, and capital gains.

2. Subtract your eligible deductions, starting with the standard deduction for your filing status. You can find this number in IRS Publication 17 (Note: not yet available for 2015 tax year). Be sure to include your eligible dependents in this figure.

3. Deduct the number of exemptions you can claim: be sure to include yourself and your spouse if you’re filing a joint return.

4. Refer to the “Adjustments to Income” section of the IRS Form 1040 to find which deductions you may qualify for, e.g., student loan interest, moving expenses, self-employment tax, educator expenses, and so on.

5. Subtract all of these deductions from your income. The final number is your taxable income, or the amount that is subject to federal income tax.

Once you have this figure, you can refer to the IRS tax tables to determine your tax bracket. You can find the tax tables in IRS Publication 17 or in the instruction booklet for Form 1040. The tables will have both the tax rate percentage and the dollar amount of tax you’ll owe for that year.

Even if you are going to have your taxes prepared and filed by a tax pro or VITA volunteer, it’s a good idea to know your tax bracket in advance.This is especially true if you’ve had a large income increase such as a raise or sizable bonus.  You can get an idea as to how much you’ll owe in taxes and how you can reduce your future tax liability.

Volunteer Vacations: Are They Tax Deductible?

You’ve maybe heard of “voluntourism” in which you travel to a different area as part of a research team or volunteer crew. Alternative Spring Break programs are becoming more popular, too, as more and more students would rather be of service during spring break than be hung over. Here ‘s a look at the tax rules surrounding this type of volunteer work.

IRS Publication 526 offers a more comprehensive take on the situation, but in a nutshell, it’s all in the nature and purpose of your trip:

Scenario 1: You decide to travel to a hurricane relief zone to assist with re-building and relief efforts. You spend a week handing out supplies, preparing meals, and playing with kids of displaced families at the relief center. You pay out of pocket to travel to the hurricane relief zone.

You can generally deduct your travel expenses, if you are working on behalf of a charitable organization such as the Red Cross or similar. You can also deduct the cost of meals and lodging. Remember, though, the burden of proof is on you to demonstrate that the trip was strictly for volunteer work and not a vacation.

Scenario 2: You sign up for a trip to Costa Rica that includes 3 days working on an archeological dig and two days for leisure activities.

You won’t be able to deduct the expenses attached to the archaeological dig due to your two days to vacation on your own for personal enjoyment.

Scenario 3: You take a group of youth camping as part of a charitable organization. You’re in charge of overseeing their activities, as well as setting up and breaking camp at the end of the trip. You are also responsible for transportation to and from camp.

If this trip is attached to a charitable youth organization such as scouting or other youth-oriented group, you are allowed to deduct travel and food expenses for this trip.

However…in each of the three scenarios, you must be on duty “in a genuine and substantial sense throughout the trip.” In other words, if your volunteer stint was limited to clearing breakfast dishes in the morning and prepping dinner at night while hanging out during the day,  the IRS could disallow your trip-related expenses.

If your volunteer stint required you to be on duty, as in the case of the camping trip in Scenario 3, you’re in luck: you can deduct those trip-related expenses.

Since these programs are fairly new, the IRS is going to scrutinize related expenses more closely than that check you write to the Boys and Girls Club last year. Be sure to keep all of your related receipts, logs, and other paperwork that can prove you were on duty for a substantial period of time.

It would be a good idea to get a letter from one of the officers of the charity, explaining the extent of your role.This will come in especially handy if you performed your volunteer work out of town.

As always, volunteer expenses must be attached to a qualified 501 (c) (3) organization in order to meet IRS guidelines.

Volunteer work, whether performed at home or across the continent, benefits both you and the charity. Make sure you can claim your related expenses by fully understanding the IRS guidelines governing volunteer expenses. When in doubt, consult a tax advisor prior to tax day.You can also consult IRS Publication 526 for more information.

 

When A Job Isn’t A Job: Work/Study And Your Taxes

shho/freeimages
shho/freeimages

A work/study gig can be a good deal if you’re a busy student who will be spending a lot of time on campus. You won’t have the hassle of seeking off-campus employment, and an on-campus job generally offers more flexible scheduling so you can focus more on your coursework.

Work/Study is offered in conjunction with federal financial aid, such as SEOG grants and Pell Grants. You or your parents will need to demonstrate “genuine financial need” in order to qualify. You will also need to be enrolled in at least six course hours; for most schools that translates roughly to two courses or part-time study.

You can be awarded Work/Study as either an undergraduate or graduate student, and you will have had to indicate your interest in a Work/Study award when you completed the FAFSA form. You can either apply for a Work/Study job on campus, or your school will assign one to you.

But Is It Income?

Here’s where it can get confusing, especially if this is your first time with Work/Study income: while it is considered a part of a federal financial aid package and therefore not considered a job per se,  you will be deriving income from your Work/Study position.  Uncle Sam will definitely want his share at the end of the year.

When you first report to your Work/Study gig, you’ll have to fill out a W4 form as you would for any other job; your withholding from each paycheck will be based on the information you provided on your W4.

At the end of the year, you’ll receive a W2, just as you would for a conventional job. You’ll also need to report your Work/Study income on your tax returns, just as you would for any other form of  wages, such as tips or wages from another job.

Landing a Work/Study position can be a good deal if you’re a busy student: you get to work on campus, hours are generally scheduled around your courses, and if you’re lucky you can work in a department that ties in closely with your major.

Although Work/Study isn’t considered a job in the traditional  sense, it is still considered income, so you will need to pay taxes on that income. Be sure to report your Work/Study wages on your tax returns at the end of the year. By reporting this income, you’ll save yourself the hassle of dealing with the IRS and back taxes in the future.

Tax Tips For Single Parents

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freeimages

As of 2014, there are over 12 million single-parent families in the United States. If you are among those single parents, no one needs to tell you that single parenthood has its own set of financial stressors. The IRS has a series of child-related tax breaks that could ease some of the financial burden for you. Read on to find out how these tax breaks can help you and your family.

Child Tax Credit

The Child Tax credit allows parents to claim up a $1,000 tax credit for each qualifying child 17 and younger. This tax credit can reduce your overall tax liability, so it can have more positive impact on your bottom line than a deduction can.

Qualifying Child

You are eligible to claim the Child Tax Credit if your child or children meet the following criteria:

  •        Under 17 years old at the end of the tax year
  •         They didn’t provide over half of their own support during the tax year
  •        Lived with you for more than half the tax year
  •        You can claim them as a dependent on your tax return
  •        Your child is a US resident, US national or US resident alien.

Furthermore, if you are a low-to-moderate income earner, you may be able to receive any excess credit as a refund with the Child Tax Credit.

Child Care Expense Deduction/Dependent Care Credit

If you have children under 12 (and eligible to be claimed as a dependent) and are currently employed or seeking employment, you could reduce your overall tax liability by claiming child care expenses. However, if your child has a disability or is unable to care for themselves, the under-12 limitation doesn’t apply.

Day care options such as child care programs, home-based child care, nannies/babysitters and/or summer camps qualify under this credit. You will need to get the EIN at the end of the year for any camps or programs (such as the Y or after-school programs) or the social security number for any individuals who provide child care on an ongoing basis.

Limitations:

This credit is limited to up to $3,000 per year for one child or to $6,000 per year for two or more children. If you are married but filing a separate return, you  can’t claim the credit.

Head of Household

The Head of Household tax filing status will allow you to claim a higher standard deduction and can further reduce your tax liability. Your children must live with you for more than half the year and they must meet the Qualifying Child criteria (see above). You’ll need to be single as of the last day of the year and to provide more than half of the overall household support in order to file as Head of Household.

Through programs such as the Child Tax Credit, the Dependent Care Credit, child care expense deductions and the Head of Household filing status, the IRS hopes to lessen the tax burden for single parents.

For more detailed information on the Child Tax Credit, refer to IRS Publication 972 and for more information on the Dependent Care Credit, check out IRS Publication 503

If the thought of reading IRS jargon leaves you cold, give us a call or click the white “Start Chat” button at the top right corner of our website. You’ll be able to schedule an appointment with a knowledgeable tax pro who can answer your questions and even file your return for you when the time comes.

 

 

 

 

Love, Honor, and Pay Tax Debt? When Your Spouse Owes Taxes

freeimages.com
freeimages.com

A married couple is seen as a singular entity in the eyes of the law, sharing assets, property, income and debts.  However, the government sees spouses as single entities when it comes to tax debt. After all, your marital vows didn’t include a promise to “love, honor,  cherish…and pay their tax debt.” Here are some ways you can protect your tax refund from tax debt collection when your spouse owes on a tax debt.

Change Your Filing Status

You can elect to file your return as “married filing separately” to protect any refund from your spouse’s tax debt collection. Downside: You may lose out on EIC credit and your refund could be less under the “married filing separately” option.

Injured Spouse

The Injured Spouse is one way you can protect your upcoming tax refund. This option ensures your tax refund will be issued to you and not to you and your spouse as a whole. Here are some of the criteria for the Injured Spouse option

  • Proof that the tax debt occured before your marriage.
  • You’re entitled to the EIC credit as a couple
  • Paying the tax debt would cause undue financial hardship, e.g. unable to pay rent and tax debt at the same time
  • The debt is owed because of your spouse’s outstanding student loan, child support or spousal support obligation.

If you and your spouse elect to use this option and are filing a paper return, you must write “injured spouse” at the top of your returns and then complete IRS form 8379 at the same time.

Innocent Spouse Option

If the Injured Spouse option isn’t a possibility in your case, you can try to utilize the Innocent Spouse option. This option can apply under the following circumstances:

  • The court has ordered your spouse to pay their ex-spouse’s outstanding debt.
  • The tax debt occurred before you and your spouse were married
  • Divorce due to domestic abuse
  • Paying the tax debt would create an extraordinary financial hardship for both of you.
  • One of you doesn’t speak English as your primary language.

Change Your Withholding Status

By changing your withholding status, or the number of exemptions claimed on your taxes, you are reducing the amount of your refund. At the same time, the government will withhold more taxes from your take-home pay. Increasing your exemptions would mean less taxes deducted from your pay.

There is no simple solution for avoiding liability for a spouse’s outstanding tax debt; the options above are just a few of the ways you can take action to avoid being liable for your spouse’s tax debt.

As with any tax matter, a qualified tax pro will able to fully assess your tax scenario, and offer you the best options based on your and your spouse’s unique circumstances.

Marraige can mean sharing many moments together, both good and bad. It doesn’t have to mean sharing your spouse’s tax debt. We have tax pros on staff who can help you both decide which option is best for your unique situation.

Get started today by clicking the white “Start Chat” button in the upper right-hand corner of any of our webpages. You don’t need to go it alone. We can help.

 

 

Tax Deductions for Job-Seekers

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If you’re taking looking for a new job in the wake of the recovering economy, you’re in luck: some of your job search expenses are tax deductible. There is one catch: the deductions only apply toward a new position within your current industry. However, you won’t be able to deduct job search expenses if you’re looking for your first job or are changing fields.

Who’s Eligible

In order to take the deduction, you must either:

  • Be seeking a new position within your field while currently employed, or
  • Seeking employment in your regular line of work after a period of unemployment.

In other words, if you’re currently working in customer service and are looking to be the next tech god or goddess, expenses for that job search aren’t eligible in the eyes of the IRS.

Eligible Expenses

A good job search can be expensive over time. Here are the expense the IRS is willing to allow:

  • Resume expenses: Printing, snail mail postage and resume writing service expenses are allowable under IRS tax codes. Just be sure to keep all receipts that are related to your resume expenses in case you will need to substantiate these costs in the future.
  • Travel: If you are traveling out of the area to seek work in that community, keep track of your mileage, meal, and fuel expenses. If you’re traveling out of the area on personal business and decide to seek work at the same time, be sure to document the percentage of time and expense devoted to job search activities. Hold on to any receipts related to your travel expenses.
  • Agency Fees: If you pay an agency or outplacement firm to assist you in finding your next job, keep any and all agency receipts documenting the fee(s) paid to them.
  • Long Distance Phone Calls: If you make long distance calls related to your job search (phone interviews, for example) print out your phone bill and highlight the related phone numbers. Mark them as “long distance phone expense: Bay Area Tech.” By marking your phone bill as soon as you get it, you’ll save yourself the hassle at the end of the year when you may not remember what all those long-distance numbers were for.

How to Report These Expenses

If you’re using the DIY approach to filing your taxes, you’ll need to list these expenses on Schedule A of your 1040 form under “miscellaneous expenses.”

Here’s the catch: You can only deduct job search expenses that exceed 2 percent of your Adjusted Gross Income (AGI). Let’s assume your AGI is $20,000. You can only deduct eligible job search expenses that exceed $400.00, or 2 percent of $20,000.

A job search can be expensive: resumes, travel, long-distance calls and related expenses can add up over time. If you’re looking for a new job within your field, you can deduct some of those job search expenses.

If the thought of calculating these expenses or interpreting IRS tax code makes you uneasy, check in with a qualified tax prep advisor. He or she can answer your questions, help you determine qualifying expenses, and file your tax return on our behalf.

If you need a qualified tax pro to help you sort through the confusion, we’re here to help. Just click on the white “Start Chat” button at the top of the page or give us a call.

What Every Caregiver Should Know About Tax Deductions

Photo: Taliesin
Photo: Taliesin

 

 

While taking care of a disabled or aging relative can be seen as a labor of love, caregiving can be stressful as it is rewarding. According to the Family Caregiver Alliance, 29% of adults are caring for someone who is ill, aging, or disabled. If you are caring for a loved one, you know too well the stress of balancing caregiving with employment, the needs of your other family members or spouse, and maintaining a healthy financial outlook. However, you may be able to claim your loved one as a dependent if you provide most of their care.

Guidelines

In order to claim your loved one as a dependent, they must earn less than $3900.00 per year, outside of any Social Security or Social Security Disability Income (SSDI). Income that can be counted in the annual figure can include pension income, interest income, and investment dividends.

You must also be providing at least 50% of the person’s support, along with utilizing at least 10% of their Adjusted Gross Income (AGI) to cover their medical expenses.

If you share caregiving duties with siblings or other family members, only one of you can claim your aging or disabled loved one as a dependent at any one time.

Eligible Expenses

These expenses can also be claimed as itemized deductions:

  • Medical/dental expenses
  • Long-term care costs
  • Prescription expenses
  • Milage to and from medical appointments
  • Certain home modification expenses, provided they are for the sole purpose of making your home or your loved one’s home more accessible for them.

It’s All (Non) Relative

What if the person you’re caring for isn’t a relative, but a close friend or other non-relative? You can still claim them as a dependent, if you meet one of the residence criteria:

  • You must live with that person for the entire tax year, or they must live with you for the tax year.
  • This rule doesn’t apply to non-relative caregivers who live out, even if they provide the majority of the financial support for related to the person they are caring for.

If this is your first year as a caregiver, check with a licensed tax pro regarding dependent care expense deductions and guidelines. While caregiving expenses can be claimed on your tax return, there are guidelines that have to be met by both you and the person your are caring for. An appointment with a qualified tax pro can help you sort out these issues well before tax day.

As with any tax matter, keep all receipts and records related to the deductible expenses and bring them with you when meeting with a tax pro for the first time.  Caregiving can be stressful, but if you arm yourself ahead of tax day with the right information regarding deductible expenses, you will be one step ahead and have one less stressful caregiving issue to contend with on tax day.