It may seem like it takes a little more effort to itemize your deductions, but doing so can save you a tax time. By itemizing your deductions, you list all of your expenses and what you’ve paid on a Schedule A, which you file with your Form 1040. There are a range of expenses that qualify to be deducted through itemization.

Each year, the IRS offers the standard deduction amount, which is a pre calculated amount available to taxpayers who choose not to itemize. Once you’ve compiled your list of expenses, you should compare it to the current year standard deduction amount, and see which option gives you the best benefit. For 2015, the standard deduction (by filing status) is:

  • Single- $6,300
  • Head of household- $9,250
  • Married filing jointly- $12,600
  • Qualifying widow(er)- $12,600
  • Married filing separately- $6,300

When you file your tax return, choose the option for your deductions, either itemizing or taking the standard deduction, which will save you the most money.

There are six different types of expenses they can be deducted using the itemized method:

  1. Medical and dental expenses
  2. State and local income taxes
  3. Interest charges
  4. Charitable donations
  5. Casualty and theft losses
  6. Miscellaneous deductions
Categories: Deductions Tags: , ,

Expenses For Child Care

March 31, 2016

Are you responsible for paying expenses relating to the care of your child? If so you may be eligible for tax credit that can save you money on these expenses. There are some requirements in order to qualify for this credit. For example, the child must be under the age of 13, but the credit also covers dependence or spouses or mentally or physically unable to care for themselves. Additionally, you must pay the expenses to cover their care while you work or go to school.

The tax credit is worth up to $3000 for a single child or dependent, or up to $6000 for two or more children. The credit is calculated on form 2441, and the minimum amount is 35% of expenses that qualify. You must have earned more at work then you paid in depending care expenses.

You can exclude up to $5000 from your income if your employer reimburses these expenses or offers a special day care program. You are still required to meet the qualifications of the dependent care credit. Any expenses that were repaid are not eligible to be claimed. You also won’t be able to claim the credit if you paid expenses after you received reimbursement. This means if your employer the credit amount in reimbursements, you won’t qualify for any additional expenses.

If you’re eligible to claim the child and appending care credit than file form 2441 with your tax return. You should know that you’ll have to provide the name, Social Security Number, or employer identification number, and contact information of your care provider in addition to the amount you paid.

Categories: Credits Tags:

Using schedule a, you can itemize your deductions when you file your tax return. Doing so allows you to deduct specific taxes that you are required to pay during the tax year. You are only allowed to deduct taxes that you yourself are responsible for, meaning you can deduct taxes you paid for another taxpayer.

Taxes that qualify for an itemized deduction include:

  • State and local income tax
  • Foreign income tax not claimed on Form 1116
  • Co-op taxes you are responsible for
  • Contributions to certain funds, such as state run benefit programs like the California State disability insurance, which are considered taxes
  • Real estate taxes, the money in escrow by the mortgage lender is not eligible

Not all taxes can be deducted. Some examples of nondeductible taxes you may have paid throughout the year include:

  • FICA tax
  • Federal income tax
  • Excise tax
  • Sewer and garbage tax
  • Licensing fees such as driver’s license, hunting license, or dog license
Categories: Deductions Tags: ,

Did you recently have to move because of work? If so you may be able to deduct some of your costs. Even if you don’t itemize your deductions, you may still be able to deduct moving expenses if you meet the following two conditions:

  1. Your commute to your new job has increased by over 50 miles. So, the mileage between your old home and your new place of work is an additional 50 miles. For example, if you traveled 30 miles from your home to work, your new job location would have to be 80 miles away from your old home in order to qualify for an expense deduction.
  2. You need to spend at least 39 weeks at your new job for the first year after relocation. Self-employed individuals have to work for 39 weeks in the general location of the move for at least one year, and for 78 weeks in two years. If you were laid off or terminated for any reason other than misconduct, or disability forced you to retire, then the employment limitation does not apply.

Certain expenses are considered deductible. Listed on Form 3903, they are:

  • Storage of personal and household goods throughout the move, as well as any expenses incurred for moving these items
  • Costs for travel or lodging for your spouse and dependents while moving from one house to the other. Using your personal vehicle will allow you to deduct gas and oil expenses, or you can take the standard deduction of 23.5¢ per mile. Vince depreciation and insurance are eligible for a moving expense deduction.

You can’t deduct temporary living costs, or any expenses related to selling or purchasing a home. Reimbursement from your employer may be offered, in which case the amount will be listed as a memo entry on your Form W2. You won’t need to take a deduction as these expenses won’t be added to your taxable income.

You may be taxed if your employer offered money for expenses that weren’t deductible, because the reimbursement will be included in wages.

Categories: Deductions Tags:

Are you aware that some Social Security benefits may be considered taxable income? Even though some taxpayers find that their benefits aren’t included at tax time, there are some benefits that will be subject to taxation. The IRS has special rules to help you determine which Social Security benefits are taxed.

Form SSA-1099, Social Security Benefit Statement, is distributed to taxpayers who received benefits during the current tax year. This statement lists the total amount of benefits received.

Generally, you can figure out if your benefits are taxable by comparing them to your other sources of income. If you have no other sources of income, and you’ve only receive Social Security benefits, then chances are you’re not going to be taxed. You may not even be required to file a tax return at all. On the other hand, if you have other forms of income, it may be determined that you should pay taxes on your Social Security benefits. Additionally, income amounts and filing status can also play a role in whether not your benefits are taxed.

The Math

There’s a pretty simple equation which you can use to figure out if your benefits will be taxed.

All you need to do is add half of the amount of your Social Security benefits to the total amount of your income. This includes any interest that is tax exempt. Next use the following information to see if your amount is greater than the limit for your filing status. If it is, your benefits will most likely be taxed.

  • Single, HOH, Qualifying Widow(er), Married Filing Separately (did not live together)- $25,000
  • Married Filing Jointly – $32,000
  • Married filing separately, if you’ve lived together at any point throughout the year – $0
Categories: General Tags: ,

Filing Head of Household

March 14, 2016

At the end of the tax year, if you are single and unmarried, you may be eligible to file your tax return using the Head of Household status. You have to be responsible for maintaining a residence for a child, parent or other eligible relative, and you have to be a citizen or resident of the United States in order to qualify. By filing Head of Household, you’ll generally receive a lower rate of taxation and a larger standard deduction than filing Single.

Married taxpayers who spent the final six months of the tax year separated from their spouse in a completely different household, may be considered unmarried, and therefore can qualify for Head of Household. If this situation exists, it’s preferable to file this way instead of Married, filing separately, which has a higher tax rate and less of a standard deduction.

There are two main requirements you must meet in order to file using the status Head of Household:

  1. You are unmarried or considered to be unmarried, as you’ve lived separately from your spouse for six months.
  2. You handled over 50% of the household expenses throughout the year, for yourself and another qualifying dependent.

All qualifying dependents are required to live in the same house as you for more than six months of the year. The only exception to this rule is if you claim your parents, who aren’t required to live with you. There are also exclusions for temporary absences.

Categories: Filing Status Tags: ,

If you filed your tax return last year or prior, you may have noticed some legislation which extended some tax provisions that are no longer applicable. Last year, Congress approved some legislation that was highly anticipated. However, this tax year, we lament in the tax provisions of seasons past. The following are no longer applicable, but were important parts of the tax code back in the day:

  • 50% Bonus Depreciation
  • Exclusion of gain from income for foreclosed home mortgage debt on Form 982
  • Depreciation of leasehold restaurant or retail upgrades over 15 years
  • Distributions from an IRA for a charity
  • Form 5695’s energy property tax credit for nonbusiness
  • Previous 30% limitation of capital gain real property contributions made for conservation increased to 50% limitation.

In addition, many expense provisions get reduced or become completely obsolete as the years pass. For example, the Section 279 expense provision was significantly reduced to $25,000 for the 2014 tax year, with a maximum cost of $200,000. The category of qualified real property was destroyed during that tax year too.

The tax legislation is constantly changing and can affect what you do with your tax return. Remember to stay informed, via our blog, or your tax advisor for more information regarding new or upcoming legislation as well as which provisions will join the list of those we’ve seen come and go.

Categories: General Tags: ,

Understanding Your W-2

March 12, 2016

Your W-2 is a statement of your wages and withholdings sent to you from your employer. You will need this form in order to fill out your tax return, but it’s important to understand all of the information contained within.

Box 1- the total of your wages, tips, bonuses, prizes, and compensatory benefits. The first box doesn’t indicate are elective deferrals for retirement funds, payroll deductions, or benefits taken prior to taxation.

Box 2 – amount of federal tax withholdings for the year.

Box 3 – reports the amount of income subject to Social Security taxation. This is taxed prior to any deductions, which means the amount can be more than what is stated in box 1. In the case of a high wage earner, box 3 may report lower than the total of box 1, as it can’t exceed the Social Security wage base, which is $118,500 for 2015.

Box 4 –this is the actual amount of taxes withheld for Social Security taxes, subject to a rate of 6.2%. This should be the number listed in box 3 multiplied by 6.2

Box 5 – lists the amount of income subject to taxation under Medicare. Typically, these taxes aren’t inclusive of pretax deductions, and will include most benefits eligible to be taxed. There is no maximum cap, which means this box can list amounts higher than either Box 3 or 4. (more…)

Categories: Forms Tags:

Taxpayers who are married have the option to file a single return or to separate their income and deductions and file separately. It’s likely simpler to file jointly if one spouse earns the majority of the household income. However, in situations where both parties earn similar amounts of income, filing separate returns may prove to be the better option for the couple, as their tax liability may lessen. It’s worthwhile to figure out the entire return using both methods to determine which is most beneficial.

In most cases, couples who file separately are taxed at a higher rate. The way this can benefit couples is that taking a multitude of deductions can actually increase savings at tax time if you file separately. Doing so allows you to claim a greater amount of medical expenses, casualties, and other expenses, because your adjusted gross income requirement is lowered. In most cases, the rates for filing separately and jointly are close, though if one spouse earns a large portion of the couple’s income, the rates may vary.

Separate returns are a great option for a taxpayer who doesn’t want to be responsible for their spouse’s tax liability. In doing so, you aren’t held accountable for interest, penalties, taxes, misrepresentation of income amounts or ineligible deductions. If you do file separately, your spouse is also required to do so. The same is true for whether or not you chose to itemize your deductions. If your spouse takes the standard deduction, $6,300 for 2015, then so must you. Likewise, if you chose to itemize using a Schedule A of Form 1040, then your spouse is required to as well, even if the total is less than $6,200.

Categories: Filing Status Tags: , ,

The Fabulous Five

March 10, 2016

Your marital status, as well as number of dependents are two of the biggest factors to determining which of the five filing statuses you should use to file your tax return. They are, in no particular order:

  1. Single
  2. Married, filing jointly
  3. Married, filing separately
  4. Head of household
  5. Qualifying widow(er)

Married couples can choose whether they want to combine their income and deductions and file one return, or each file an individual return. Married taxpayers may qualify for head of household if they have a child who lived with them for the whole year, in a residence separate from their spouse for the final six months of the tax year. If you qualify, it’s likely in your best interest to file this way, as it generally lowers your tax liability.

Taxpayers who aren’t married are usually considered single, unless they meet the strict rules for Head of household or qualifying widow(er). With the exception of dependent parents, in order to qualify as head of household, you must have provided over half the expenses for a home in which you have a child who has resided there the full year. Parents are not required to live with you.

For 2015, a taxpayer whose spouse passed away in 2014 or 2013 may be eligible to file as qualifying widow(Er) if they maintain the household expenses for themselves and a dependent child.

Deductions, credits, and exemptions are all affected by the filing status you chose, as well as the rate of taxation. This is why its extremely important to choose the most appropriate status in order to maximize benefits at tax time.

Categories: Filing Status Tags: , ,