Tax Tips For Individuals

Tax Incentives for Higher Education

The tax code offers a range of incentives for families paying for higher education or repaying student loans. These incentives can significantly reduce the financial burden of education, so it’s important to understand the options available to you. Joseph Di Staulo, CPA can guide you through these processes to ensure you maximize your benefits.

Education Credits

You may be eligible to claim the American Opportunity Credit or the Lifetime Learning Credit for qualified tuition and related expenses for students in your family (you, your spouse, or your dependents) who are enrolled in eligible educational institutions. The rules for each credit differ, and your eligibility phases out at higher income levels.

Student Loan Interest Deduction

You may also be able to deduct the interest you pay on a qualified student loan. This deduction is an adjustment to income, which means you can claim it even if you don’t itemize deductions on your tax return. However, like the education credits, the deduction phases out at higher income levels.

If your student loan was canceled, you might not have to include the canceled amount as income on your tax return.

Check Withholding to Avoid Tax Surprises

It’s important to check your tax withholding each year to avoid an unexpected tax bill or penalty. This is especially crucial after recent changes to the tax law. Additionally, if you received a large refund last year, adjusting your withholding could help keep more money in your pocket throughout the year.

Life events such as changing jobs, getting married or divorced, buying a home, or having children can all impact your tax situation. The IRS withholding calculator on IRS.gov can help you calculate the correct withholding. You can also use the worksheets in Publication 505: Tax Withholding and Estimated Tax to ensure accuracy. If an adjustment is needed, you can submit a new W-4, Withholding Allowance Certificate to your employer.

5 Tips for Early Tax Preparation

Preparing for tax season early can save you stress and speed up your refund. Here are five tips to help you get a jump on your taxes:

  1. Gather your records in advance – Make sure you have all necessary forms like W-2s and 1099s. Always save a copy for your records.
  2. Get the right forms – Visit IRS.gov to access forms anytime, including those you might need for special deductions or credits.
  3. Take your time – Rushing through your return increases the risk of errors. Take your time, and maybe even enjoy a coffee break.
  4. Double-check your math and Social Security number – These are common errors that can delay your return or lead to issues with the IRS.
  5. File early for a faster refund – Filing your return early gets you a refund faster. E-filing and opting for direct deposit will cut down your wait time even more compared to paper filing.

Amended Returns

Made a mistake on your tax return? Don’t panic! You can file an amended return if necessary.

The IRS will typically correct simple math errors or request missing forms without the need for you to file an amendment. However, if you need to make corrections, such as changing your filing status or correcting your income, use Form 1040X, Amended U.S. Individual Income Tax Return.

How to File an Amended Return

  1. Complete Form 1040X and be sure to include the year of the return you are amending.
  2. If you are amending more than one year, submit a separate 1040X for each return and mail them in separate envelopes to the IRS processing center for your state.
  3. Form 1040X includes three columns:
    • Column A: Original or adjusted figures from your initial return.
    • Column B: The difference between the original and corrected figures.
    • Column C: The corrected figures.
  4. Provide a clear explanation on the back of the form regarding the changes and attach any relevant schedules or forms. For example, if you’re now claiming the Earned Income Tax Credit due to a qualifying child, you must attach Schedule EIC.

If you are expecting an additional refund, wait until you receive the original refund before filing Form 1040X. You may cash your original refund while waiting for the amended one. If you owe additional tax, file Form 1040X and pay the tax by April 15 to avoid penalties and interest.

Generally, you must file an amended return within three years from the date you filed the original return or within two years from the date you paid the tax—whichever is later.

IRS Refund Information

The IRS issues most refunds in less than 21 days, although some require additional time. Visit the IRS website to get the status of your refund. The “Where’s My Refund?” tool will give you the status of your refund within 24 hours after the IRS has received your e-filed return or 4 weeks after you’ve mailed a paper return. It has the most up-to-date information about your refund. You should only call the IRS if it has been more than 21 days since you e-filed or more than 4 weeks since you mailed your paper return.

For IRS telephone assistance contact numbers, please visit IRS.gov and type in “Telephone Assistance” in the search box.

Filing an Extension

If you can’t meet the April 15 deadline to file your tax return, you can get an automatic six-month extension of time to file from the IRS. The extension will give you extra time to submit your paperwork but does not extend the time you have to pay any tax due. You will owe interest on any amounts not paid by the April deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.

You must make an accurate estimate of any tax due when you request an extension. You may also send a payment for the expected balance due, but this is not required to obtain the extension.

To get the automatic extension, file Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return, with the IRS by the April 15 deadline, or make an extension-related electronic payment. You can file your extension request by computer or mail the paper Form 4868 to the IRS.

The system will give you a confirmation number to verify that your extension request has been accepted. Keep this confirmation number on your copy of Form 4868 for your records. Do not send the form to the IRS. As this is the area of our expertise, please contact us for more detailed information on how to file an extension properly!

Car Donations

The IRS reminds taxpayers that specific rules apply for taking a tax deduction for donating cars to charities. If the claimed value of the donated motor vehicle, boat, or plane exceeds $500, you can deduct the smaller of the vehicle’s fair market value (FMV) on the date of the contribution or the gross proceeds received from the sale of the vehicle.

People who want to take a deduction for the donation of their vehicle on their tax return should take several steps. First, check that the organization is qualified. Taxpayers must ensure that they contribute their car to an eligible organization; otherwise, their donation will not be tax-deductible. Taxpayers can search the Tax Exempt Organization Search to check if an organization is qualified. They can also call the IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization’s correct name and headquarters location, if possible. Churches, synagogues, temples, mosques, and governments do not need to apply for this exemption to be qualified. Please contact us if you’re considering a car donation for your tax return!

Charitable Contributions

When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations can add up to a nice tax deduction for your corporation (if you are a member of a flow-through business entity) or your personal taxes if you itemize deductions on IRS Form 1040, Schedule A. Here are a few tips to ensure your contributions pay off on your tax return:

  • You cannot deduct contributions made to specific individuals, political organizations and candidates, the value of your time or services, and the cost of raffles, bingo, or other games of chance.
  • To be deductible, contributions must be made to qualified organizations.

Organizations can tell you if they are qualified and if donations to them are deductible. Taxpayers can also search the Tax Exempt Organization Search (TEOS) online tool to verify an organization’s status. Additionally, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization’s correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques, and governments do not need to apply for this exemption to be qualified. Alternatively, contact us for more information!

Plug-In Electric Vehicles (PEVs)

For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle that draws propulsion energy from a battery with at least 5 kilowatt-hours of capacity, $417, plus an additional $417 for each kilowatt-hour of battery capacity over 5 kilowatt-hours. The total amount of the credit allowed for a vehicle is limited to $7,500. The credit is available only to the original purchaser of a new qualifying vehicle, and the vehicle must be placed in service in the same year the credit is claimed on the return. If the qualifying vehicle is leased, the credit is available only to the leasing company. The vehicle must be used primarily in the United States.

Additional conditions regarding qualified manufacturers and phase-out rules may also apply in determining credit eligibility. To find out whether your car qualifies for the Qualified Plug-in Electric Drive Motor Vehicle tax credit, you can visit the IRS.gov website and search for “plug-in vehicles” or contact us for more information.

Earned Income Tax Credit for Certain Workers

Millions of Americans forgo critical tax relief each year by failing to claim the Earned Income Tax Credit (EITC), a federal tax credit for individuals who work but do not earn high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax, or even receive a tax refund. The IRS estimates that 25 percent of people who qualify don’t claim the credit, and millions of Americans have claimed the credit in error, often due to misunderstanding the criteria.

EITC is based on the amount of your earned income and the number of qualifying children in your household. If you have children, they must meet the relationship, age, and residency requirements. You must file a tax return to claim the credit.

It’s easier than ever to find out if you qualify for EITC using the online tool, EITC Assistant. Please contact us for more information!

Tax Credits

Are you eligible for any of these tax credits? Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns, advises the IRS. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable—taxes could be reduced to the point that a taxpayer receives a refund rather than owing any taxes. Below are some of the credits taxpayers could be eligible to claim:

  • Additional tax credits available to eligible taxpayers
  • Earned Income Tax Credit (EITC)
  • Child Tax Credit
  • American Opportunity Tax Credit
  • Lifetime Learning Credit

Please contact us so we can analyze your specific situation and offer advice.

Refinancing Your Home

Taxpayers who refinanced their homes may be eligible to deduct some costs associated with their loans. Generally, for taxpayers who itemize, the “points” paid to obtain a home mortgage may be deductible as mortgage interest. Points paid to obtain an original home mortgage can be, depending on circumstances, fully deductible in the year paid. However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.

For a refinanced mortgage, the interest deduction for points is determined by dividing the points paid by the number of payments to be made over the life of the loan. This information is usually available from lenders. Taxpayers may deduct points only for those payments made in the tax year. For example, a homeowner who paid $2,000 in points and who would make 360 payments on a 30-year mortgage could deduct $5.56 per monthly payment, or a total of $66.72 if he or she made 12 payments in one year.

If part of the refinanced mortgage money was used to finance improvements to the home and the taxpayer meets certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid. Additionally, if a homeowner is refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at payoff.

Other closing costs—such as appraisal fees and other non-interest fees—are generally not deductible. Additionally, the amount of Adjusted Gross Income can affect the deductions that can be taken.

Credit for the Elderly or Disabled

You may be able to take the Credit for the Elderly or the Disabled if you were age 65 or older at the end of last year, or if you are retired on permanent and total disability, according to the IRS. Like any other tax credit, it’s a dollar-for-dollar reduction of your tax bill. The maximum amount of this credit is constantly changing. You can take the credit for the elderly or the disabled if:

  • Generally, you are a qualified individual for this credit if you are a U.S. citizen or resident at the end of the tax year and you are age 65 or older, or you are under 65, retired on permanent and total disability, received taxable disability income, and did not reach mandatory retirement age before the beginning of the tax year.
  • If you are under age 65, you can qualify for the credit only if you are retired on permanent and total disability. This means that:
    • You were permanently and totally disabled when you retired, and
    • You retired on disability before the end of the tax year.

Even if you do not retire formally, you are considered retired on disability when you have stopped working because of your disability. If you feel you might be eligible for this credit, please contact us for assistance.

Selling Your Home

If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.

To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. You also must not have excluded gain on another home sold during the two years before the current sale.

If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use. Longer breaks, such as a one-year sabbatical, do not.

If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home. Send us a message for more!

Foreign Income

With more and more United States citizens earning money from foreign sources, the IRS reminds people that they must report all such income on their tax return, unless it is exempt under federal law. U.S. citizens are taxed on their worldwide income. This applies whether a person lives inside or outside the United States. The foreign income rule also applies regardless of whether or not the person receives a Form W-2, Wage and Tax Statement, or a Form 1099 (information return).

Foreign source income includes earned income, such as wages and tips, and unearned income, such as interest, dividends, capital gains, pensions, rents, and royalties.

An important point to remember is that citizens living outside the U.S. may be able to exclude up to $102,100 for 2017 and $103,900 for 2018, of their foreign source income if they meet certain requirements. However, the exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S. Please contact us if you feel you may have earned foreign income to learn more!

Deductible Taxes

Did you know that you may be able to deduct certain taxes on your federal income tax return? The IRS says you can if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation. There are four types of deductible non-business taxes:

The Tax Cuts and Jobs Act (TCJA) limits the cumulative amount of the above taxes an individual can deduct in a calendar year to $10,000.

You can deduct estimated taxes paid to state or local governments and prior year’s state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for income or sales tax.

Deductible real estate taxes are usually any state, local, or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

To claim a deduction for personal property tax you paid, the tax must be based on value alone and imposed on a yearly basis. For example, the annual fee for the registration of your car would be a deductible tax, but only the portion of the fee that was based on the car’s value. Call us or contact us today to find out how we can save you money!

Gift Giving

If you gave any one person gifts valued at more than $15,000, it is necessary to report the total gift to the Internal Revenue Service. You may even have to pay tax on the gift. The person who received your gift does not have to report the gift to the IRS or pay either gift or income tax on its value.

You make a gift when you give property, including money, or the use of or income from property, without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift.

There are some exceptions to the tax rules on gifts. The following gifts do not count against the annual limit: If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift. 

Marriage or Divorce

Newlyweds and the recently divorced should make sure that names on their tax returns match those registered with the Social Security Administration (SSA). A mismatch between a name on the tax return and a Social Security number (SSN) could cause your tax return to be rejected by the IRS.

For newlyweds, the tax scenario can begin when the bride says “I do” and takes her husband’s surname, but doesn’t tell the SSA about the name change. If the couple files a joint tax return with her new name, the IRS computers will not be able to match the new name with the SSN. Similarly, after a divorce, a woman who had taken her husband’s name and had made that change known to the SSA should contact the SSA if she reassumes a previous name.

It’s easy to inform the SSA of a name change by filing Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. The form is available on the agency’s website, www.ssa.gov, by calling toll-free 1-800-772-1213 and at local offices. The SSA website provides the addresses of local offices. Alternatively, please contact us as we can be of even greater assistance with your spousal situation.

Affordable Care Act

The individual shared responsibility provision requires that you and each member of your family have qualifying health insurance, a health coverage exemption, or make a payment when you file. If you, your spouse, and dependents had health insurance coverage all year, you will indicate this by simply checking a box on your tax return.

Starting in 2014, the individual shared responsibility provision calls for each individual to have qualifying health care coverage, known as minimum essential coverage, for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.

If you have to make an individual shared responsibility payment, you will use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to figure the shared responsibility payment amount due. The amount due is reported on line 61 of Form 1040, Schedule 4. You only make a payment for the months you did not have coverage or qualify for a coverage exemption.

Filing Deadline and Payment Options

If you’re trying to beat the tax deadline, there are several options for last-minute help. If you need a form or publication, you can download copies from the IRS Forms page under Tax Tools on our website. If you find you need more time to file, you can file for an extension with Form 4868.

Although an extension gives you until October 15 to file your return, it does not give you more time to pay any taxes you owe. If you owe taxes, you should make an estimated payment by the original due date of your return to avoid penalties and interest. If you’re unable to pay all your taxes, the IRS can work with you to set up a payment plan.