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Six Overlooked Tax Breaks for Individuals
Confused about which credits and deductions you can claim on your 2014 tax return? You're not alone. Here are six tax breaks that you won't want to overlook.
1. State Sales and Income Taxes
Thanks to last-minute tax extender legislation passed last December taxpayers filing their 2014 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.
Here's how it works. If you bought a big ticket item like a car or boat in 2014, it might be more advantageous to deduct the sales tax, but don't forget to figure any state income taxes withheld from your paycheck just in case. If you're self-employed, you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2013 tax return in 2014, you can include the amount when you itemize your state taxes this year on your 2014 return.
2. Child and Dependent Care Tax Credit
Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent--such as an elderly parent--who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35 percent of $3,000 of eligible expenses per dependent.
3. Job Search Expenses
Job search expenses are 100 percent deductible, whether you are gainfully employed or not currently working--as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2 percent of your adjusted gross income (AGI). Also, you cannot deduct job search expenses if you are looking for a job for the first time.
4. Student Loan Interest Paid by Parents
Typically, a taxpayer is only able to deduct interest on mortgage and student loans if he or she is liable for the debt; however, if a parent pays back their child's student loans that money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.
5. Medical Expenses
Most people know that medical expenses are deductible as long as they are more than 10 percent of Adjusted Gross Income (AGI) for tax year 2014. What they often don't realize is what medical expenses can be deducted, such as medical miles (23.5 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.
Other deductible medical expenses that taxpayers might not be aware of include health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.
If you're self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct those premiums as well.
6. Bad Debt
If you've ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.
Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.
Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are...but maybe you're not. Why take a chance? Call the office today and make sure you get all of the tax breaks you deserve.
Who Should File a 2014 Tax Return?
Most people file a tax return because they have to, but even if you don't, there are times when you should because you might be eligible for a tax refund and not know it. This year, there are a few new rules for taxpayers who must file. The six tax tips below should help you determine whether you're one of them.
1. General Filing Rules. Whether you need to file a tax return this year depends on a few factors. In most cases, the amount of your income, your filing status, and your age determine if you must file a tax return. For example, if you're single and 28 years old you must file if your income was at least $10,150. Other rules may apply if you're self-employed or if you're a dependent of another person. There are also other cases when you must file. If you have any questions, don't hesitate to call.
2. New for 2014: Premium Tax Credit. If you bought health insurance through the Health Insurance Marketplace in 2014, you might be eligible for the new Premium Tax Credit. You will need to file a return to claim the credit.
If you purchased coverage from the Marketplace in 2014 and chose to have advance payments of the premium tax credit sent directly to your insurer during the year, you must file a federal tax return. You should have received Form 1095-A, i>Health Insurance Marketplace Statement, in February. The new form has information that helps you file your tax return and reconcile any advance payments with the allowable Premium Tax Credit.
Note: Taxpayers who have a balance due on their 2014 income tax return as a result of reconciling of these payments please read, Penalty Relief: Overpayment of ACA Tax Credits, below.
3. Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year's tax? If you answered "yes" to any of these questions, you could be due a refund. But you have to file a tax return to get it.
4. Earned Income Tax Credit. Did you work and earn less than $52,427 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,143. If you qualify, file a tax return to claim it.
5. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don't get the full credit amount, you may qualify for the Additional Child Tax Credit.
6. American Opportunity Credit. The AOTC (up to $2,500 per eligible student) is available for four years of post-secondary education. You or your dependent must have been a student enrolled at least half-time for at least one academic period. Even if you don't owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim the credit.
Which Tax Form is Right for You?
You can generally use the 1040EZ if:
Note: You can't use Form 1040EZ to claim the new Premium Tax Credit. You also can't use this form if you received advance payments of this credit in 2014.
The 1040A may be best for you if:
You must use the 1040 if:
Choose the Right Filing Status
Wondering which filing status to use? Here's a list of the five filing status options:
1. Single. This status normally applies if you aren't married. It applies if you are divorced or legally separated under state law.
2. Married Filing Jointly. If you're married, you and your spouse can file a joint tax return together. If your spouse died in 2014, you often can file a joint return for that year.
Note: Keep in mind that your marital status on Dec. 31 is your status for the whole tax year.
3. Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit you if it results in less tax than if you file a joint tax return. It's a good idea for you to prepare your taxes both ways before you choose. You can also use it if you want to be responsible only for your own tax.
4. Head of Household. In most cases, this status applies if you are not married, but there are some special rules. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Don't choose this status by mistake. Be sure to check all the rules before you file.
5. Qualifying Widow(er) with Dependent Child. This status may apply to you if your spouse died during 2012 or 2013 and you have a dependent child. Certain other conditions also apply.
Note for same-sex married couples. In most cases, you and your spouse must use a married filing status on your federal tax return if you were legally married in a state or foreign country that recognizes same-sex marriage. That's true even if you now live in a state that doesn't recognize same-sex marriage.
Help is just a phone call away. Call or make an appointment now and get the answers you need today.
Using a Car for Business? Grab These Deductions
Whether you're self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.
There are two choices for claiming deductions:
Which Method Is Better?
For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.
Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.
How to Make Tax Time Easier
Keep careful records of your travel expenses and record your mileage in a logbook. If you don't know the number of miles driven and the total amount you spent on the car, we won't be able to determine which of the two options is more advantageous for you.
Furthermore, the tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. If you use the actual cost method for your auto deductions, you must keep receipts.
Call today and find out which deduction method is best for your business-use car. You'll be glad you did.
Penalty Relief: Overpayment of ACA Tax Credits
Beginning in 2014, an eligible individual or family member covered under a qualified health plan through a Health Insurance Marketplace (Exchange) is allowed a premium tax credit.
The premium tax credit offsets the cost of premiums paid for healthcare coverage in a qualified health plan. It is unusual in that taxpayers are able to take advantage of the credit in advance of filing an income tax return for the taxable year of coverage.
Advance credit payments are made directly to the insurance provider. The amount of the advance credit payments is determined when an individual enrolls in a qualified health plan through an Exchange and is based on projected household income and family size for the year of coverage.
When a taxpayer claims the credit on their income tax return the amount of premium tax credit allowed on the tax return (based on actual household income and family size for the year of coverage) must be reconciled, or compared, with advance credit payments.
Taxpayers who have a balance due on their 2014 income tax return as a result of reconciling advance payments of the premium tax credit against the premium tax credit allowed on the tax return have been granted penalty relief by the IRS.
This relief applies only to tax year 2014 and does not apply to any underpayment of the individual shared responsibility payment.
Two types of penalties may be imposed by the IRS. The first is a failure-to-pay penalty (unless granted relief for reasonable cause) and applies to taxpayers who do not pay tax due by the April 15 filing date. The second is a penalty for failure-to-pay estimated tax and applies to taxpayers who underpay tax as a result of reconciliation.
With regard to failure-to-pay estimated tax, generally, taxpayers are required to make tax payments on nonwage income in quarterly installments. An underpayment of estimated tax is the excess of the required quarterly estimated tax payment over the amount actually paid on or before the due date for the payment.
Most taxpayers are able to avoid this penalty if they owe less than $1,000 in tax on their 2014 income tax return after subtracting their withholding, or if their withholding and estimated taxes total at least 90 percent of the tax for taxable year 2014 or 100 percent of the tax shown on their 2013 taxable year return.
To qualify for IRS penalty relief, taxpayers must meet certain requirements:
Requesting relief from the failure-to-pay penalty
Generally, the IRS automatically assesses the penalty against taxpayers and sends a notice demanding payment. When responding to such a notice, taxpayers should submit a letter to the address listed in the notice that contains the statement: "I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit."
Taxpayers who file their returns by April 15, 2015 will be entitled to relief even if they have not fully paid the underlying liability by the time they request relief.
Taxpayers who file their returns after April 15, 2015 must fully pay the underlying liability by April 15, 2016 to be eligible for relief. Interest will accrue until the underlying liability is fully paid.
Requesting relief from the failure-to-pay estimated tax penalty
To request a waiver of the failure-to-pay estimated tax, taxpayers should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their return, along with the statement: "Received excess advance payment of the premium tax credit."
Taxpayers do not need to attach documentation from the Exchange, explain the circumstances under which they received an excess advance payment or complete any page other than page 1 of the Form 2210. Taxpayers also do not need to figure the amount of penalty for the penalty to be waived.
If you have any questions about penalty relief for overpayment of ACA premium tax credits, please call.
It's Not Too Late to Make a 2014 IRA Contribution
If you haven't contributed funds to an Individual Retirement Arrangement (IRA) for tax year 2014, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date, not including extensions.
Be sure to tell the IRA trustee that the contribution is for 2014. Otherwise, the trustee may report the contribution as being for 2015 when they get your funds.
Generally, you can contribute up to $5,500 of your earnings for tax year 2014 (up to $6,500 if you are age 50 or older in 2014). You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.
Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan.
Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.
Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans.
Saving for retirement should be part of everyone's financial plan and it's important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give the office a call.
Can You Take the Earned Income Tax Credit?
Since 1975, the Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break each year. Four out of five eligible workers claim EITC. Wondering if you can too? Here's what you should know about this valuable credit:
1. Review your eligibility. If you worked and earned under $52,427 in 2014, you may qualify for the EITC. If your financial or family situation has changed, you should review the EITC eligibility rules because you might qualify for the EITC this year even if you didn't in the past. If you qualify for the EITC you must file a federal income tax return and claim the credit to get it. This is true even if you are not otherwise required to file a tax return.
2. Know the rules. Before you claim the EITC, you need to understand the rules to be sure you qualify. And it's important that you get this right. Here are some factors you should consider:
3. Lower your tax or get a refund. The EITC reduces your federal tax and could result in a refund. If you qualify, the credit could be worth up to $6,143. The average credit was $2,407 last year.
4. Use a legitimate tax preparer. Don't guess about your EITC eligibility. Use the EITC Assistant tool on IRS.gov, which helps you find out if you qualify and will estimate the amount of your EITC. Then, call the office.
Questions? Call today to find out more about this important tax credit.
What You Should Know about the AMT
Even if you've never paid Alternative Minimum Tax (AMT), before, you should not ignore this tax. Why? Because your tax situation might have changed and this might be the year that you need to pay AMT. AMT attempts to ensure that taxpayers who claim certain tax benefits pay a minimum amount of tax. You may have to pay this tax if your income is above a certain amount.
Here's what you should know about the AMT:
1. When AMT applies. Your filing status and income determine the amount of your exemption. You may have to pay the AMT if your taxable income, plus certain adjustments, is more than your exemption amount. In most cases, if your income is below this amount, you will not owe AMT.
2. Exemption amounts. The 2014 AMT exemption amounts are:
Your AMT exemption is reduced if your income is more than certain limits.
3. Use the right forms. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax--Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.
4. AMT rules are complex. The easiest way to prepare and file your tax return is to use a qualified tax preparer who will figure out AMT for you if you owe the tax. Call today for more information or to set up a consultation.
Tax Due Dates for March 2015
Businesses - File information returns (Form 1099) for certain payments you made during 2014. These payments are described under February 2. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the General Instructions for Certain Information Returns for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file.
If you file Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms is still February 2.
Farmers and Fishermen - Farmers and fishermen. File your 2014 income tax return (Form 1040) and pay any tax due. However, you have until April 15 to file if you paid your 2014 estimated tax by January 15, 2015.
Payers of Gambling Winnings - File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2014. If you file Forms W-2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains February 2.
Employers - File Form W-3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W-2 you issued for 2014.
If you file Forms W-2 electronically, your due date for filing them with the SSA will be extended to March 31. The due date for giving the recipient these forms is still February 2.
Employers - with employees who work for tips. File Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically, your due date for filing them with the IRS will be extended to March 31.
Employees who work for tips - If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.
Employers - Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in February.
Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in February.
Corporations - File a 2014 calendar year income tax return (Form 1120) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe.
S Corporations - File a 2014 calendar year income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1 (Form 1120S), Shareholder's Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return, file Form 7004 and deposit what you estimate you owe.
Electing large partnerships - Provide each partner with a copy of Schedule K-1 (Form 1065-B), Partner's Share of Income (Loss) From an Electing Large Partnership. This due date applies even if the partnership requests an extension of time to file the Form 7004.
S Corporation Election - File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2015. If Form 2553 is filed late, S treatment will begin with calendar year 2016.
Electronic filing of Forms 1097, 1098, 1099, 3921, 3922, and W-2G - File Forms 1097, 1098, 1099, 3921, 3922, or W-2G with the IRS. This due date applies only if you file electronically. Otherwise, see March 2.
The due date for giving the recipient these forms generally remains February 2.
For information about filing Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically, see Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G.
Electronic filing of Forms W-2 - File copies of all the Forms W-2 you issued for 2014. This due date applies only if you electronically file. Otherwise see March 2. The due date for giving the recipient these forms remains February 2.
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