Individual Tax Tips
Tax Incentives for Higher Education
The tax code provides a variety of tax incentives for families who are paying higher education costs or are repaying student loans. You may be able to claim an American Opportunity Credit (formerly called the Hope Credit) or Lifetime Learning Credit for the qualified tuition and related expenses of the students in your family (i.e. you, your spouse, or dependent) who are enrolled in eligible educational institutions. Different rules apply to each credit and the ability to claim the credit phases out at higher income levels.
If you don't qualify for the credit, you may be able to claim the "tuition & fees deduction" for qualified educational expenses. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. This deduction phases out at higher income levels.
You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not have to itemize your deductions on Schedule A Form 1040. However, this deduction is also phased out at higher income levels.
Check Withholding to Avoid a Tax Surprise
If you owed tax last year or received a large refund you may want to adjust your tax withholding. Owing tax at the end of the year could result in penalties being assessed. On the other end, if you had a large refund you lost out on having the money in your pocket throughout the year. Changing jobs, getting married or divorced, buying a home or having children can all result in changes in your tax calculations.
The IRS withholding calculator on IRS.gov can help compute the proper tax withholding. The worksheets in Publication 505, Tax Withholding and Estimated Tax can also be used to do the calculation. If the result suggests an adjustment is necessary, you can submit a new W-4, Withholding Allowance Certificate, to your employer.
5 Tips For Early Preparation
Earlier is better when it comes to working on your taxes. The IRS encourages everyone to get a head start on tax preparation. Not only do you avoid the last-minute rush, early filers also get a faster refund.
There are five easy ways to get a good jump on your taxes long before the April 15 deadline rolls around:
Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don't forget to save a copy for your files. Get the right forms. They're available around the clock on IRS.gov in the Forms and Publications section. Take your time. Don't forget to leave room for a coffee break when filling out your tax return. Rushing can mean making a mistake — and that can be expensive! Double-check your math and Social Security number. These are among the most common errors on tax returns. Taking care on these reduces your chances of hearing from the IRS. Get the fastest refund. When you file early, you get your refund faster. Using e-filing with direct deposit gets you a refund in half the time as paper filing.
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 get the paperwork into the IRS, but it 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 the extension request has been accepted. Put this confirmation number on your copy of Form 4868 and keep it 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!
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 FMV on the date of the contribution or the gross proceeds received from the sale of the vehicle.
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 help make sure 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 Exempt Organizations Select Check online tool, to check that an organization is qualified. In addition, 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 are not required to apply for this exemption in order to be qualified. Alternatively, contact us for more!
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!
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 a particular amount 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!
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 Web site, www.ssa.gov, by calling toll free 1-800-772-1213 and at local offices. The SSA Web site provides the addresses of local offices. Alternatively, please contact us as we can be of even greater assistance with your spousal situation.
The Tax Advocate Service, Provided by the IRS
Have you tried everything to resolve a tax problem with the IRS but are still experiencing delays? Are you facing what you consider to be an economic burden or hardship due to IRS collection or other actions? If so, you can seek the assistance of the Taxpayer Advocate Service.
You may request the assistance of the Taxpayer Advocate if you find that you can no longer provide for basic necessities such as housing, transportation or food because of IRS actions. You can also seek help from the Taxpayer Advocate Service if you own a business and are unable to meet basic expenses such as payroll because of IRS actions. A delay of more than 30 days to resolve a tax related problem or no response by the date promised may also qualify you for assistance.
Qualified taxpayers will receive personalized service from a knowledgeable Taxpayer Advocate. The Advocate will listen to your situation, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved to the fullest extent permitted by law.
The Taxpayer Advocate Service is an independent organization within the IRS and can help clear up problems that resulted from previous contacts with the IRS. Taxpayer Advocates will ensure that your case is given a complete and impartial review. What's more, if your problem affects other taxpayers, the Taxpayer Advocate Service can work to change the system.
You can gain quick access to the Taxpayer Advocate Service by contacting us, or the IRS directly toll-free 1-877-777-4778.
Tips and Taxes
Do you work at a hair salon, barber shop, casino, golf course, hotel or restaurant or drive a taxicab? The tip income you receive as an employee from those services is taxable income, advises the IRS.
As taxable income, these tips are subject to federal income, Social Security and Medicare taxes, and may be subject to state income tax as well.
You must keep a running daily log of all your tip income and tips paid out. This includes cash that you receive directly from customers, tips from credit card charges from customers that your employer pays you, the value of any non-cash tips such as tickets or passes that you receive, and the amount of tips you paid out to other employees through tip pools or tip splitting and the names of those employees.
You can use IRS Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer, to record your tip income. For a free copy of Publication 1244, call the IRS toll free at 1-800-TAX-FORM (1-800-829-3676).
If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes and to report the correct amount of your earnings to the Social Security Administration (which will affect your benefits when you retire or if you become disabled, or your family's benefits if you die). Contact us so your wages are properly reported!