What You Need to Know About the Savers Credit

If you are not familiar with the saver’s credit, then stop what you are doing right now because this is definitely a credit worth knowing about...one that could end up drastically cutting your tax bill.

The credit was designed to try and encourage people to save more for retirement, something that everyone really should be doing. Through this credit, low to moderate income individuals and couples can receive a tax credit worth as much as 50% of their retirement contributions in many cases. Thus, the more you save for retirement, the less you will pay in taxes, or, if you prefer and qualify, you can put the credit toward an increased refund. What could be better?

So, Are You Eligible?

Obviously, this tax credit sounds pretty great, and it definitely is...if you qualify. Your income is the main factor in determining if you are eligible for the saver’s credit, and, if so, how much of a credit you can get.

For single, married filing separately or widowed filers, your adjusted gross income must be between $18,250 or less and $30,500- any more and you won’t qualify. Your credit percentage is based on your exact income as detailed below:

l  10% credit for income levels between $19,751 and $30,500

l  20% credit for income levels between $18,251 and $19,750

l  50% (full) credit for income levels below $18,251

Here are the breakdowns for heads of household:

l  10% for incomes between $29,626 and $45,750

l  20% for incomes between $27,376 and $29,625

l  50% for incomes below $27,375

For married filing jointly individuals, the breakdowns are:

l  10% for incomes between $39,501 and $61,000

l  20% for incomes between $36,501 and $39,500

l  50% for incomes below $36,500

If you qualify for or think you could qualify for this credit, even if not for the whole 50%, be sure to bring this up with your tax adviser or preparer so that you can make the most of this awesome tax credit while boosting your savings in the process!

How to Cut Tax Costs with Home Improvements

When most people make improvements to their homes, they’re doing it because they want a nicer, more comfortable home. In some cases, though, their home improvements end up benefiting not just them, but others as well. When that’s the case, these homeowners often qualify for some awesome deductions that can help them to save money and offset the costs of some of those improvements. Read on to learn about some great home improvements that could just earn you a tax break.  

Improved Energy Efficiency

If you’ve recently done something or are considering doing something to increase the energy efficiency of your home, you should know that the government approves While making your home more energy efficient can help your wallet, it can also help the environment, and the government likes to reward those who try and reduce their carbon footprints.

While there are many different tax credits related to energy efficiency, one of the best is the Residential Energy Efficiency Property Credit, which will give you a discount for installing solar panels, wind technology, geothermal units, or fuel-cell technology.

Check to see if your home improvement plans qualify, and, if so, make sure you take advantage of this great deduction.

New Water Heaters

Another home improvement that could earn you a tax credit is installing a new water heater. If that water heater is considered more energy efficient than your last model and/or meets certain other standards, there’s a good chance you’ll qualify.

Check with an accountant or with the appliance manufacturer to be sure, but definitely make use of this credit if you’re eligible; it’s worth it!

A New Roof

Finally, if you put a new and improved roof over your head, you’ll probably qualify for the Nonbusiness Energy Property Credit. In general, if the roof you install is designed to reduce a home’s heat gain, it’s good to go in terms of the credit.

As is the case with all of these credits, however, make sure you double-check before you file for the credit to avoid potential trouble or disappointment. As long as you’re careful, though, you can get some great home improvements and some great tax credits; talk about a winning combination!

Tax Tips for Parents

If you’re a parent, then you probably already know that kids can be pretty darn expensive! The good news, however, is that there are ways to cut back on the costs of having kids. One thing you can do to save money, for example, is to take advantage of the many tax credits and deductions that exist for the moms and dads of the world. Below, you’ll find the details on some of the very best ways for parents to save on their taxes!

The Dependent Deduction

As long as your little (or not so little) one qualifies as a “dependent,” you’ll qualify for the dependent exemption. This exemption enables you to reduce your taxable income and thus lower the amount of taxes you owe.

In order for a child to count as a dependent, he or she must be under 19 or under 24 if the child is a student and financially dependent on you.  Also, bear in mind that dependents who are permanently disabled are not limited by the age restriction.

Dependent Care Credit

Dependent care or child care can get very expensive. However, for many people, it’s an absolute necessity. Fortunately, though, there is a tax credit that allows you to deduct the money you spend on child care or dependent care from your taxes.

This credit, known as the child and dependent care tax credit, is for people who:

·        - Pay for childcare for children under 13

·        - Are able to work or look for work as a result of the childcare or dependent care

·         -Earned income during the tax year

If you meet these basic qualifications, you can talk with your tax advisor to learn how to make the most of this credit.

Adoption Tax Credit     

If you chose adoption as your route to parenthood, then you can recoup some of your costs through the adoption tax credit. Your income will determine your eligibility, however, so research the credit and talk with your accountant before just assuming you qualify. You’ll also need to determine, based on various factors, the exact amount of credit you are able to claim. In general, though, most people can earn tax credit for:

·       -  Relevant legal fees

·        - Relevant meal  costs

·         -Relevant travel costs

·         -Relevant lodging fees

Just make sure you have proof of any expenses you claim. Keep receipts or other proof stored away in case of an audit.

Student Loan Interest Deductions

Higher education is expensive, and if you’re footing all or part of the bill for your child via student loans, you may qualify to deduct interest payments made on some loans. If you do qualify, the deduction can greatly reduce your amount of taxable income.

Loans must be from a legitimate lending institution and must have been taken out while your child was enrolled part-time or full-time in a degree-earning higher education program.

There are other eligibility requirements and caveats to bear in mind as well, so, as is advisable with all of these savings methods, check with your accountant to ensure you qualify and to make sure you file correctly!

Related articles

• 7 Requirements for the Child Tax Credit (turbotax.intuit.com)

Do You Qualify for the Health Care Premium Tax Credit?

Individuals and families can buy private health insurance through Affordable Insurance Exchanges, which are marketplaces where individuals can find private health insurance.  (This is a new program created by the Affordable Care Act.)  If you purchase health insurance through an exchange, you may be eligible for a tax credit that will make your coverage more affordable.

The credit is aimed at middle-income individuals and families. A larger credit is available for older individuals whose coverage costs may be higher. The credit will be refundable, which means it can be used by people who pay little or no federal income tax. You can arrange for the credit to be paid to your insurer in advance so that you have little or no out-of-pocket costs.  Are you eligible for the credit? We can help you find out and work with you to make the best use of your health insurance dollars. Call us today with all your questions about health care finance or any other financial concerns.

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• 800,000 people affected by HealthCare.gov tax problem - HHS (bnowire.com)

About the Alternative Minimum Tax

The alternative minimum tax was originally enacted to ensure that high-income taxpayers pay at least a minimum amount of tax if they benefit from certain deductions and other tax preference items.

The AMT tax computation is a parallel system to the regular tax system with its own definitions of income and expenses, rules for income recognition and timing, and exemptions and tax rates. Although every taxpayer is subject to AMT rules, the additional tax is paid only if the tax computation under AMT rules is higher than the tax computed under regular rules.

Even though the AMT was originally targeted toward high-income taxpayers, factors, including inflation and treatment of certain tax credits, can sometimes push lower-income taxpayers into an AMT situation.

How AMT Works

Certain items called “adjustments and preferences” are added to federal gross income. Personal exemptions that reduce taxable income for regular tax purposes are not allowed for AMT purposes and are added back to taxable income. A separate AMT exemption amount is allowed, depending on the taxpayer’s filing status. After the AMT adjustments and preferences are added to income, and the AMT exemption amount is subtracted, an AMT tax rate of 26% to 28% is applied. If the resulting tax is greater than regular tax, the difference is added to regular tax on line 45, Form 1040.

Example #1: When computed under regular rules, John’s income tax is $4,700. When computed under AMT rules, the tax amount is $3,900. Since his tax computed under AMT rules is less than his tax computed under regular rules, John will not pay any additional amount for AMT.

Example #2: Assume the same facts as Example #1, except when computed under AMT rules, John’s tax amount is $5,100. Since his tax computed under AMT rules is higher than his tax computed under regular rules, John must pay the difference in additional tax. John must report additional AMT tax on line 45, Form 1040, in the amount of $400.

AMT Triggers

Items that commonly trigger AMT include high deductions for state income tax, dependent exemptions, exercise of incentive stock options, and large miscellaneous itemized deductions reported on Schedule A, Form 1040. Other AMT adjustments and preferences include:

•    Medical and dental expenses. A portion of these deductions may need to be added back for AMT purposes.

•    Taxes from Schedule A, Form 1040.

•    Certain mortgage interest deductions.

•    Tax refunds reported on Form 1040.

•    Certain investment interest expense.

•    Certain depletion expense.

•    Net operating losses.

•    Interest from specified private activity bonds.

•    A portion of gain from section 1202 small business stock.

•    Certain gains from dispositions of property.

•    Certain depreciation adjustments.

•    AMT loss limitations.

•    Certain circulation costs.

•    Long-term contracts.

•    Certain mining costs. 

•    Certain research and experimental costs.

•    Pre-1987 installment sale income.

•    Intangible drilling cost preferences.

AMT “Patch”

Because the original AMT law did not include a provision to index the exemption amount for inflation, over the years, a growing number of middle-income taxpayers have become subject to AMT. Historically, Congress limited the impact of the AMT by passing temporary legislation, often referred to as “patches,” to provide relief for millions of middle-income taxpayers who might otherwise be affected by AMT. Congress has patched the AMT every year for the past several years.

The “fiscal cliff” tax law that was passed on January 2, 2013, included a provision making the AMT patch permanent. Exemption amounts were retroactively increased for 2012 and will be indexed for inflation in future years. Under the new legislation, personal credits will also be allowed against the AMT on a permanent basis.

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• Alternative Minimum Tax: Common Questions (turbotax.intuit.com)