May 21, 2013

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Valentine Gifts May Save You Some Money!

February 13, 2013 By

Valentine’s Day is tomorrow and couples look forward to the cake, corny cards, chocolate and candy. Here is another innovative way to sweeten valentines even more: there are gifts that can actually place you at a tax advantage. Consider the following eleven gifts that keep on giving, tax wise!

  1. Buy a vacation house. Costs incurred in purchasing a property can be deducted to reduce your tax bill. Mortgage interest and real estate taxes are deductible on a Schedule A, if itemized. Expenses associated with a second home may also be claimed subject to certain restrictions. And it doesn’t have to be the Biltmore House. A second home includes not only a house but also a condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. Yachts are also considered as a second home.
  1. A wedding ring also counts. People love to propose on Valentine’s Day, definitely because it’s the most romantic day of the year. The cost of the ring is not deductible; don’t get too excited! The tax break however, is there ever after. Your filing status is determined as of the last day of the year, so even if you don’t get married until December 31 this year, you can still file as married filing jointly. A lot of negative sentiment surrounds the possibility of a marriage penalty, but in truth, most married couples pay less in taxes as a result of filing jointly. Saying “I do” could actually save you some money!
  1. In the event that you have an outstanding tax debt, it is advisable that you settle it before you can get married. It’s a shame to start a life together marred by tax debts and it may cause all kinds of problems in the long run. Encourage your better half to acquire a tax relief as an ideal and thoughtful gift to yourself!
  1. If you plan to live happily ever after and sail away into the sunset, ensure that that partner is healthy. What better ways to achieve this than having regular checkups and to ensure you are well on the path to good health? The costs of all checkups regardless of age and sex, whether for heart disease, cancer, or heart disease are all deductible if itemized. It does make sense to stay healthy.
  1. Go to school, or take a loved one to school. For 2012, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for your own education or for your spouse (or other dependents).The lifetime learning credit is available for tuition and related expenses at an eligible educational institution. Any school, music, culinary, art or vocational school! An eligible education institution includes any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. Enquire if you aren’t sure. Away with procrastinating about that culinary school dream and get with the program! Pursue your passion, and you just might improve your tax position!
  1. An unrivalled means of showing adoration for someone is making a donation in their name. Unsurprisingly, the tax laws make this a win- win situation for all. The charity wins, and you win your sweetie’s heart as well, in addition to a considerable reduction of your tax bill. So support the whales, cancer research, or even an orphanage, and you may claim a deduction for your gift.
  1. Smoking; there was no way to leave that one out. It kills, it’s costly, and is disgusting. Quit now and save loads of money! The cost of participation in a cessation of smoking program and for drugs to combat nicotine withdrawal is a deductible tax expense if itemized. Your other half will thank you, and so will your future self. So stop smoking now!
  1. Care and love is shown in many ways. One of them is by showing a direct concern for your spouse’s future. This can be done by contributing to a spousal IRA, if you are married and earn more than your spouse. If you file a joint return, you can make a contribution to a spousal IRA $5,000 (6000 if your spouse is over 50). Watch out for phase outs though.
  1. Raising a child isn’t easy. Kids are expensive, with all the bills, parties, school, and so on. The tax authorities, luckily, are in on this fact, and have gone a long way into making sure there are some perks associated with parenthood. Increased exemptions and the earned income tax credit are some of the tax breaks, and though they don’t offset the actual costs of raising kids, considering it would be a great way of moving a relationship to a higher level.
  1. Hire a tax professional. It has been statistically proven that most fights among couples are about money. Anything you can do to have a happy marriage is worth the cost, correct? Paying for a tax professional is tax deductible if itemized, and would save you a lot of time… time which you could better spend enjoying your relationship! Seek tax advice and save yourself a great deal of time.
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4 Things New Parents Need to Know About Taxes

January 31, 2013 By


Parenthood can be challenging. Whenever a baby comes into the picture, a parent’s life is transformed in its entirety. You have to worry about so many things at the same time; changing the diapers, renovation of the nursery room, amongst other accompanying challenges. You can be so occupied with the baby that you may not even think about the impact he or she might have on your income taxes. The IRS shares in the joy of parents, and you can save on your taxes.

1. Tax Deduction for a Bouncing Baby: Every child under the age of 18 is automatically treated as a dependant if they live with you. You can therefore, claim an additional personal exemption on your return. The value of the reductions varies year after another: for 2012, you can reduce up to $3,800 from your taxable income.

2. Child Tax Credit: You can save up to $1,000 per child from your tax bill. However, there are some stringent rules that must be met to qualify for the child tax credit. All or part of the credit can be phased out if you make over $75,000 (single filers) or $110,000 if you file joint return. The credit can also be used as tax savings for the amounts you have to spend on daycare or related expenses. There are some considerable adoption-related deductions that you can also claim to help you offset the high costs of adoptions.

3. Change to Filing Status: A child doesn’t usually affect the filing statuses of married taxpayers who file joint tax returns. However, single parents can claim the “head of household” deduction, which may lead to massive savings. With a head-of-household filing status, you can take advantage of subsidized tax rates.

4. Your Child’s Tax Filing: Children don’t have to file their income tax returns. There are nevertheless, times when you may choose to set up an investment in your kid’s name, and if they rake in profits, you sure will have to file on your kid’s behalf whenever it is deemed necessary. Despite the limitations brought about by the kiddie tax on how much income a parent can earn at the kid’s lower rates, it is possible to shelve a substantial amount from the higher tax rates parents have to deal with.

Most of these benefits can only be fully utilized if you get your child a Social Security Number, which is really not difficult at all. As you celebrate the newborn, don’t forget to think about the taxes. Just like your baby, taxes will always feature in your life; one way or the other.

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Taking Advantage of the Adoption Tax Credit

August 13, 2012 By

The current tax code offers a sizable tax credit to those who adopt a child. Costs for adopting a child can be immense and this welcomed tax credit aims to assist those looking into adopting a child (or children) by helping reimburse part of these high costs. Last year, the Adoption Tax Credit has been adjusted, so it is more favorable for those wanting to adopt. Not surprisingly, there are some rules that apply to the qualification of this credit.

The Credit is Refundable

For the previous year, the Adoption Tax Credit is a refundable credit, which means that you get a refund check for the credit amount, even if you do not owe any taxes to Uncle Sam.

Income Limits and Figures

The amount of credit that you can claim has been increased; the limit currently, is $ 13,360 per child. The amount of tax credit that you can claim will vary, dependent on the costs sustained toward the adoption. In special cases, namely for special needs children, parents can claim the maximum amount, regardless of having incurred costs equal to the credit amount.

The maximum amount of credit is available for taxpayers who had an Adjusted Gross Income (AGI) of below or up to $185,210 for the 2011 tax year. Those who earned above this set limit are allowed claim, but it will have to be a lower amount in credit. Yet, taxpayers who earned an AGI of $225,210 or more are not eligible at all.

Eligibility of Adopted Child

The Adoption Tax Credit is available for children who are adopted before they turn 18. The credit is also available for adopting those who are disabled (either mentally or physically) and cannot properly look after themselves without assistance.

Filing to Make Claim

The Adoption Tax Credit can be claimed only by filing on paper; this credit cannot be claimed electronically or digitally. Free File can still be used to file your returns, but you will still need to print out the return and then, send the hard copy to the IRS offices. You will need to attach the Qualifying Adoption Expenses (Form 8839) that will indicate the expenses claimed that will qualify you for this credit. You will also need to attach documentation that outlines these expenses. These documents may include:

  • The final adoption decree
  • A state declaration that proves that the adopted child is in need
  • Various adoption-related court documents
  • Receipts for the adoption expenses
  • Placement agreement from a qualifying adoption agency

Claimable Expenses

A taxpayer is allowed to claim all expenses that are deemed realistic and required to assist in the adoption. Some of these expenses are:

  • Adoption fees
  • Attorney fees
  • Travel and/or moving expenses
  • Court expenditures
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Planning for Your Child’s Summer Made Easier with the IRS Child and Dependent Care Tax Credit

June 21, 2012 By

Summer comes with several challenges to different people. To parents, their main concern is usually how best to juggle between their work and the kids. However, it doesn’t have to be so complex, as the IRS stresses that it remains committed with tax credits that can help ease some of the day-camp expenses for the kids.

Any day-camp costs during the summer and all through the year may qualify for the Child and Dependent Care Tax Credit. However, just like other IRS’s tax credits, there are some basic considerations put in place to guide in the implementation of this credit. Taxpayers must bear in mind these factors to benefit.

The Kids Ages: Not all kids of all ages who attend day-camp qualify for the Child and Dependent Care Tax Credit. The kids have to be below 13 years old to qualify. This might disappoint those parents with older kids, but to the eligible ones, lucky for them.

Childcare Facility: The tax credit has no limitation on the venue for the childcare provider. The IRS understands that there are childcare providers who babysit at home while others run daycare facilities away from their homes. If you take your kid to either of these, you are still eligible for the tax credit.

Amount: The IRS set the maximum reimbursed expenses at $3,000 payable within a year for any eligible taxpayer. For two or more eligible individuals, the amount is set at $6,000. Please note that the credit doesn’t cover all the qualifying expenses. Depending on an individual’s income, it can go up to 35% of all the legitimate expenses in a year.

What Doesn’t Count: There are limitations on activities that qualify as well. The IRS excludes costs suffered in an overnight camp or attendance fee for any summer lessons/schooling. If you plan to have your kids take extra lessons in summer, be prepared to shoulder these expenses with no hopes for deductions.

Please ensure that that you get official receipts for any expenses, you will need them when filing your tax returns. Don’t forget the location of the camp and the Employer Identification Number (EIN). Also of great significance are the dates when the kids attended the camp.

Take a look at the Child and Dependent Care Expenses contained in the IRS Publication 503, which can be downloaded from the IRS website.

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7 Major Expanded Adoption Credit Facts You Must Know

June 18, 2012 By

It is possible for a taxpayer to claim a tax credit to a maximum of $13,170 for eligible expenses paid in the adoption process of an eligible kid. The credit amount was increased and made refundable with the enactment of the Affordable Care Act. This means that the amount of your refund can be increased as well.

Taxpayers must however, understand the following seven facts about the expanded adoption credit.

  1. The expanded adoption credit came into effect in the 2010 tax year and even people who didn’t owe the IRS any taxes could get it.
  2.  To enjoy the credit, you have to file a paper tax return as well as Form 8839, eligible expenses and attach all relevant adoption supporting documents.
  3.  The main documents required might include: the concluding adoption verdict and the agreement of placement from relevant adoption agency. Those adopting kids with special needs should produce court documents plus a determination by the state.
  4. The adoption expenses that one incurs in the process include; court costs, legal/attorney costs, travel costs and most importantly, the adoption fees paid. Eligible adoption costs are reasonable and required expenses that directly relate to the lawful adoption of the child and must be paid as stipulated by the law.
  5.  A qualified and adoptable child must not exceed 18 years of age. Also, the child can be physically or mentally incapable of caring for himself or herself. The idea behind adoption is helping those kids who might otherwise lack someone to look over them.
  6.  A taxpayer’s credit is cut if his/her modified adjusted gross income exceeds $182,520. However, those with a modified AGI of over $222,520 don’t qualify for the credit.
  7.  Those taxpayers claiming the expanded adoption credit can still prepare their returns using the IRS Free File. However, these returns have to be printed and posted to the IRS, together with any other documents that are required.

 Taxpayers interested in this credit should bear in mind the above factors. You can access further information about the Adoption Credit from the “Guides to the IRS Form 8839, Qualified Adoption Expenses.” This document is available for download from the IRS website. You can also call 800-TAX-FORM (800-829-3676) and place an order, as well as have your questions answered.

 With taxes eating up many people’s revenues, you have to be smart and enjoy any tax relief that you qualify for.

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The Child Tax Credit

June 6, 2012 By

The IRS offers a tax credit to parents who are eligible tax payers and have qualifying children under age 17. This tax credit is referred to as the child tax credit.

Below are eleven facts about this tax credit:

You may be able to reduce your tax bill by up to $1,000 for each qualifying child aged below 17 with the Child Tax Credit.

A qualifying child

The child must meet the seven test criteria: age, relationship, support, he/ she must be your dependent, joint return, citizenship and residence. This criteria is highlighted below

　

a. Test of age, a qualifying child must be aged below 17 at the end of 2011. This means that only children 16 years and below may qualify.

b. The Relationship Test

A qualifying child, for the purposes of the Child Tax Credit must be your stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child, or children lawfully places with you for legal adoption also qualify,

c. The support test is passed if you have provided more than half of the child’s support.

d. The dependent test requires that you claim the child as a dependent on your federal tax return.

e. Joint return test: The qualifying child cannot file a joint return for the year. He/ she file it only as a claim for refund.

f. Citizenship test: The child must be a U.S citizen, U.S national or resident alien; the child must legally reside in the U.S.

g. The Residence test, which states that the child must have lived with you for more than half of 2011. Exceptions or the residence test exist, and may be found in IRS Publication 972, Child Tax Credit.

There are Limitations to the credit if your modified adjusted gross income is above a certain amount. At this amount, phase-out begins varies by filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax and any alternative minimum tax you owe.

Additional Child Tax Credit You may be able to claim the Additional Child Tax credit if the amount of Child Tax credit claimable exceeds the amount of Income Tax owed.

Tax effect

Any additional information is available in IRS Publication 972, available at

www.IRS.gov. You may also call 800-TAX-FORM (800-829-3676), or use the Interactive Tax Assistant on the IRS website if you’re eligible for the child tax credit.

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How Your Kids Influence Tax Cuts

May 11, 2012 By

Your kids may not sort your tax receipts or refill your coffee as you try to sort your tax issues, but they could be very beneficial; your children could help you qualify for some valuable tax benefits. The IRS has provided a list of 10 things every parent should consider when filing taxes this year:

  1. Dependents – a child can be claimed as a dependent from the year they are born. This information is available on IRS publication 501, Exemptions, Standard Deduction, and Filing Information.
  2. Child Tax Credit- You can take this credit for your children who are under the age of 17. If you are unqualified for the full amount of Child Tax Credit, you may be eligible for the Additional Child Tax Credit. More IRS information is available on IRS publication 972, Child Tax Credit.
  3. Child and Dependent Care Credit – This is applicable if you pay other people to take care of your child or children under the age of 13 so that you can work or look for work. The details on this are in the IRS publication 503, Child and Dependent Care Expenses.
  4. Earned Income Tax Credit (EITC) – This is a tax benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may give you a refund. More details are available in the IRS Publication 596, Earned Income Credit.
  5. Adoption Credit – A tax credit is available if you qualify for certain expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with the required adoption-related documents. The instructions and more information are on the IRS Form 8839, Qualified Adoption Expenses.
  6. Children with earned income – If you have a child who is working for a an income, you are required to file a tax return as IRS Publication 929,Tax Rules for Children and Dependents details out.
  7. Children with investment income – some circumstances dictate that a child’s investment income be taxed at their parent’s tax rate. This is available in the IRS Publication 929, Tax Rules for Children and Dependents.
  8. Higher education credits – Education tax credits may aid you in offsetting the costs of higher education. The Lifetime Learning Credits and the American Opportunity are education credits that can reduce your federal income tax dollar-for-dollar. IRS Publication 970, Tax Benefits for Education gives better details on this.
  9. Student loan interest – You do not have to itemize your deductions to be able to deduct interest paid on a qualified student loan. More information is available on IRS Publication 970.
  10. Self-employed health insurance deduction – for the self-employed, if you paid for health insurance, you can deduct any premiums you paid for coverage for any of your children who was under 27 at the end of the year, even if the child as not your dependent at that time. More information is on IRS website.

The above forms and publications are accessible via www.irs.gov, or calling 800-TAX-FORM (800-829-3676).

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