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.

 

 

 

 

Changes to the 2015 Tax Code You Should Know

Part 2 of 2

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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. 

5 Most Easily Overlooked Deductions

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Make the most of the deductions available to you

As the tax year winds down and as the holidays gain momentum, it’s easy to put off thinking about serious matters such as taxes. After all, there are holiday parties to attend, office parties to live down, and visits with friends and family foremost on your list. Once the holiday season is over, however, tax season will be here before you know it.

You might think of tax deductions as something only high-income earners need to worry about, but there are plenty of deductions available for taxpayers of all income brackets. Here’s a look at some of most easily overlooked deductions:

1. Casualty or theft losses: If you lost property in a disaster or via burglary or theft, note it on your tax return. Let’s say you use your car to drive for Uber or Lyft. Your car is totaled in an accident, including some of the contents. You’ll need to claim this deduction on the Schedule A attachment on your federal tax return. The rules surrounding this deduction are complex, so it will be in your best interest to seek the advice of a tax pro.

2. Cell phone: You can claim this deduction only if you use your cell phone for business purposes. Keep copies of your cell phone bill, and note which calls/text charges are business-related. You’ll need these figures at tax time when calculating your deduction.

3. Contacts, glasses, or hearing aids: Your new contacts and back-up glasses may have cost you a fortune, but you can deduct most of the cost at the end of the year by using the Schedule A attachment on your tax return.

4. Fees for prepared childbirth classes if part of pre-natal care: Kids are expensive, even before they arrive. Claim this cost under medical/dental and keep a copy of any documentation verifying medical necessity or completion of the course. You can only deduct any medical/dental costs not covered by insurance, so this won’t work if your insurance company covered the cost of your childbirth classes.

5. Union dues: You can claim your union dues as a deduction, but be sure to keep any documentation that verifies you paid them or they were deducted from your paycheck.

Tommrow: 5 more of the most easily overlooked tax deductions

 

 

 

Last-Minute Deductions You May Have Forgotten About

Freeimages/Paige Foster
Freeimages/Paige Foster

The 2015 calendar year is winding down, which means your tax year is also coming to a close. If you’re scrambling to think of last-minute credits or deductions, here are a few to jump-start that process:

Student loan deduction: If this is your first post-college tax year, chances are you’ve started making payments on your student loans. The good news is that you can deduct the interest on those payments at the end of the year. Even better: you can still deduct the interest even if your parents are making the payments on your behalf. As long as you’re not being claimed as a dependent on you parents’ return, you can claim up to $2500.00 of student loan interest without attaching Schedule A, Itemized Deductions to your return.

Your student loan servicer will issue a 1098-E, or the Student Loan Interest Statement. If you have multiple loans, make sure each servicer sends you the 1098-E. They typically send them out no later than the end of January, so you should be good to go by February.

By deducting student loan interest, you could end up paying less in taxes in the long run since your taxable income will be less.

Job search expenses: If you landed a new job within the same industry, your moving expenses may be deductible. Here’s an example of some of those costs:

  • Phone calls
  • Postage for snail mail
  • Career placement services
  • Resume printing and copying
  • Lodging and travel expenses associated with out of town interviews
  • Relocation expenses related to your new job, provided your new residence is at least 50 miles from your current residence

There is a catch, however. These expenses must exceed 2 percent of your Gross Adjusted Income (AGI) in order for you to take the deduction. If you can claim the deduction, you can itemize these expenses under the “miscellaneous expenses” portion of the Schedule A attachment on your tax return.

Medical/Dental: If you had a lot of out-of-pocket medical/dental expenses this year, now is the time to deduct them. Same goes for any HSA contributions you made this year.

These are just a few of the last-minute deductions you can grab at the end of the year while preparing for tax season. Be sure to organize all records and receipts associated with these expenses, so you’ll be able to file an accurate return, or so your tax preparer can file an accurate return on your behalf.

As with any tax deduction, check with your tax preparer to see if you are eligible, as each person’s tax scenario is unique.

 

Unclaimed Tax Refunds: Make Sure Yours Isn’t One of Them

According to the IRS, many tax refunds are unclaimed each year. Here are some simple steps to make sure yours isn’t one of them.

1. File your returns each and every year. One of the biggest culprits in unclaimed refunds is unfiled tax returns. If you neglect to file your return and you are eligible for a refund, the IRS will keep those funds for up to three years. Be sure to file your return if you’re in the three-year window for a refund.

2. Double(and triple-check) your numbers for accuracy. If you use tax filing software, the program will automatically check your math. Same holds true if you file your returns at a tax filing firm or have a tax preparer file your return. If you’re taking the DIY route and filing a paper return, however, be sure to double-check your calculations.

An inaccurate return will not only cause delays, but it could also delay any refunds you may have coming.

3. Report any address changes to the IRS directly. Don’t rely on the postal service to forward any IRS correspondence. The address on your return must match the address the IRS has on file in order to eliminate any delays in processing your refund. Your refund could also be delayed if it’s sent to your old address. You can also elect to have your refund electronically deposited into your bank account to avoid any further mail-related delays.

4. Take advantage of every tax deduction available to you. If you’re a low-income earner, you may be eligible for the Earned Income Tax Credit, for example. Parents should look into the Child Tax Credit and other child-related deductions. Homeowners may be eligible for mortgage-related deductions. If you’re not sure which deductions you’d qualify for, check with a CPA or a tax pro. They can assess your individual tax scenario and advise you of which deductions you can claim on your return.

Hundreds of thousands of dollar in refunds go unclaimed every year. Don’t let yours be among them. File a return every year, double check your numbers, quickly report any address changes to the IRS, and take advantage of the deductions available to you. Taking these steps will ensure you will receive the refund that is rightfully yours.

Donating Your Car to Charity

Sarah Buxton/freeimages
Sarah Buxton/freeimages

You did it. Despite student loan payments, rent, and utilities, you’re now earning enough to add a new car to the mix. You’ll no longer be paying enough in repair bills to send your mechanic’s kid to college, and you’ll have safe, reliable transportation.

What to do with your old car? If it’s a beater or a very old car, you’ll get very little for it. If you’ve ever thought of donating your old car to charity, here are a few things to keep in mind:

Is It A Qualified Charity?

The IRS has an online tool for checking whether or not a charity is qualified:http://www.irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check. As a general rule, the following categories of charities are qualified:

  • Public schools, colleges, churches, volunteer fire departments, utility emergency funds, local animal shelters or humane societies and rescue organizations, health-related organizations, research hospitals and large charities such as the Red Cross, American Heart Association, or the United Way.
  • Any charity that is designated as 501 (c)(3) charity is a qualified charity. If your charity of choice has an up-to-date website, that information is usually found on the “About Us” page.

How Much Will I Get?

Much of this will depend on how the charity will use your donated vehicle. If they sell the car, you can only deduct the sales price. Once the car is sold, the charity will send you a copy of the bill of sale. If the car sold for $2,000 despite a fair market value of $3500.00, you can only deduct the $2000.00 as a charitable deduction.

If the charity doesn’t sell the vehicle and uses it instead, you may be able to deduct the fair market value of the car. For example, if you donate your old SUV or minivan to the local senior center and they use the vehicle for Meals on Wheels, you can claim the fair market value, or Blue Book Value of the vehicle.

In this case, the safest thing to do is to obtain a letter or other written proof they will be keeping the vehicle for their own use. This documentation will come in handy should the IRS ever question this deduction.

Getting a new car is a welcome relief if you’ve been driving an older car.  You’ll have steady, reliable transportation with all the new tech features and gadgets. If you’d like to donate your old car to charity,  make sure the charity is a 501 (c)(3) charity in order to be eligible for the charitable contribution deduction.

The amount of your deduction will depend on how the charity will use the vehicle, either reselling it or using it for their own purposes. Either way, your contribution will benefit your community, your designated charity, and you’ll be able to deduct your contribution from your taxes at the end of the year. Clearly a “win-win” for everyone.