Using Form 1099R

Sometimes, keeping track of all of the various tax forms that exist and of which ones apply to you can be tough. However, the fact remains that there are some important forms you will likely need to know about in your lifetime, and Form 1099-R is one of them.  

This is the form that is used to report distributions of any retirement benefits, such as pensions or benefits from retirement plans. While there are some variations on this form, depending on the specifics of your situation, more often than not, the standard 1099-R form is what is used.

You will typically be given a copy of this form or one similar to it to fill out if you receive a distribution of at least $10 from a retirement plant.

Pension and Annuity Distributions

One of the most common types of retirement benefits that people receive come in the form of pension and annuity distributions. These are mostly given to retired and/or disabled employees or to the beneficiary of a deceased employee.

In most cases, the benefit amount is included in your taxable income unless after-tax contributions were made to the annuity or pension before distribution. When this happens, only some of the distribution is generally taxable.

Loans

Many people think that, when they take out a loan against their pension plan, these count as distributions. It is important to understand, however, that, in most cases, these loans have to later be repaid with interest and are not considered distributions.

You would usually only have to use Form 1099-R if, for some reason, you did not make your loan payment when you were supposed to. When this happens, the amount that you owe is then considered a distribution and may even be penalized.

As you can see, Form 1099-R and when to use it can be tricky, and there are always special circumstances and situations as well.  For that reason, if you think you have to use this form but are unsure or if you have questions about using it properly, remember that it is always best to talk these matters over with a tax professional for best results.

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Positive Life Changes Can Equal a Tax Break

It’s a brand new year, and, if you’re like most people, then you have probably committed yourself to making some big and positive changes in the year to come. Whether your resolution is to lose weight, volunteer more, to get out of debt, or anything in between, you might be surprised to learn that many of these positive changes you plan on making actually come with tax deductions attached, which is even more reason to stick to your guns and actually follow through on your resolution.  

Want to Lose Weight?

One prime example of a common new year’s resolution with benefits attached is losing weight.

If you’re determined to shed the extra flab this year, you can rest assured that,in the future, you will be likely to save on health care costs by avoiding many of the ailments, such as high blood pressure and heart disease, that affect the chronically overweight.

Furthermore, you can often deduct the costs related to approved weight loss programs, gym memberships, and other health and wellness related measures if your doctor can verify, in writing, that you need to do these types of things to benefit your health.

Finish that Degree

If your new year’s resolution is more about improving your mind than your body, don’t worry- you can still benefit!

If you are planning to attend a trade school or college in the new year, you can, in many cases, benefit from the American Opportunity Tax Credit, which can lead to some pretty awesome opportunities and savings.

Spread the Love

Maybe your new year’s resolution is to be more mindful of others. That’s a great goal and one that, ultimately, you can still benefit from yourself!

If you choose to give allowable goods or cash donations to a reputable charity, these things are fully deductible, which can lead to savings and benefits.

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Tips on Managing Self Employment Taxes

Being self-employed is a wonderful thing, mainly because it allows you to do things on your own terms and in your own time. One thing that you cannot do on your own time, however and unfortunately, is your taxes. Taxes are one of those things that, like it or not, have definite deadlines, and, since tax time is upon us, it’s important to make sure that you are properly managing and making the most of your self-employment taxes. Fortunately, there are several simple tips that, if followed, can help you to do just that.    

Know What Deductions You Can Take

Obviously, the first step in understanding and managing your deductions is knowing what they are! You should take extra care to find any and all deductions that your particular business is eligible for. And, since these do vary greatly from one type of business to the next, it’s a good idea to either do some serious research and reading and/or to speak with a tax professional who can analyze and categorize your business and let you know of all potential tax deductions that are available to you, including those that you might have overlooked in the past.

Keep Detailed Records

Once you are fully aware of all of the deductions that you can take and, even more importantly, are taking full advantage of them, then your next step is to ensure that you are properly recording and keeping detailed information on each deduction that you take advantage of.

You may want to have a card/account for business related expenses and deductions and/or a software program to help you record them (or both).

If you are not up to all of that work, then you may want to hire a professional financier to keep track of all of that information for you.

No matter how you go about it, it is crucial to record all deductions you utilize, as well as general self-employment related monetary transactions so that you will have both an easy record and easy proof of any and all information you may need for tax purposes and, if the instance arises, audit purposes.

As you can see, properly managing self-employment deductions and, for that matter, self-employment itself, is not that difficult, especially not with the right professional help, so follow these useful tips to ensure success.

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No Health Insurance, No Money

Recent legislative changes have made it so that Americans are required to have some kind of health insurance. If they do not have adequate health insurance, however, they are forced to pay sizable penalties in many cases. What do you do, however, if you don’t have health insurance and can’t afford to pay the penalty for not having it? Well, fortunately for you, there are some things you can do to make things a bit easier on yourself.     

Exemptions

One of the first things that you should be aware of is that, under the new laws, there are many exemptions (more than 30 actually!) that will keep you from having to pay the aforementioned health insurance penalty, and almost half of non-insured Americans will ultimately qualify for such an exemption. This means that, oddswise, your chances of being exempted from paying the penalty are pretty good!

Your best bet, if you want to learn about exemptions thoroughly and/or think that you may qualify for one, is to speak with a professional tax adviser to learn more about these exemptions and how they may potentially apply to you and your situation.

In fact, in some cases, such as when your income is below the IRS income filing threshold, you may not even have to apply for these exemptions in order to receive them.

The Tax Credit Option

If you ultimately find that you do not qualify for an exemption, then rest assured that this does not necessarily mean that all hope is lost. You may, instead, be able to qualify for a tax credit that can take care of or at least offset the penalty you have to pay. Examples of such credits include:

l  The Child Tax Credit

l  The American Opportunity Tax Credit

l  The Earned Income Tax Credit

The bottom line is that, no matter where you currently are in the process, a qualified tax professional can either help you to find qualifying health insurance or to potentially find a way around paying the penalty, which is why you should get in touch with a pro as soon as possible.

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What to do if your Identity is Stolen

Identity theft is a very real and very serious problem in the United States. And, sadly, one of the most common identity-theft crimes is when a scammer manages to steal and pocket another person’s income tax refund. Typically, the person who has been “had” does not find out until he or she goes to file a real return.   

While, sadly, there is not really anything you can do to 100% guarantee that this won’t happen to you or that you won’t become the victim of another type of identity theft, there are, at the very least, things you can do to prevent this kind of thing from happening, and, worst case scenario, to lessen the damage if it does.

Know the Signs of Income Tax Fraud

First and foremost, one of the best things that you can do for yourself is to educate yourself on the warning signs of income tax fraud. That way, if these warning signs do happen to crop up in your life, you will take notice, contact the IRS, and, hopefully, stop what is happening in its tracks.

Some warning signs of identity theft typically include:

l  Getting a notification/alert that more than one income tax return has been filed in your name

l  Cancellation of state and/or federal benefits for reasons you do not understand

l  You show a balance due but were not required to file a return

l  Your earned income is higher than you actually earned

l  Refund offset occurs when you were not required to file a return

l  The IRS has inaccurate information about your employer

l  You have a collections action in a year in which you were not required to file a return

If you notice any of these signs, and/or if something just seems “amiss”with your taxes, be sure to contact the IRS, as well as, ideally, a tax professional, to help you sort things out before the situation gets even messier.

If You Notice These Signs…

As mentioned, if you notice any signs of trouble, then you should act immediately.

As soon as you have verified the fact that identity theft did occur, you will want to fill out and send in form 14039, the identity theft affidavit, preferably with the help and guidance of a seasoned professional.

This will let the IRS know that you have been victimized and will start you down the right path to undoing any damage that has been done.

Remember, this process can be complex to go through, especially alone, so you are highly advised, whenever possible, to seek help from a financial professional.

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Differences in Taxable and Non-Taxable Income

When it comes to income, there are basically two different types that you should be aware of: taxable income and non-taxable income. It is important for you to understand which type of income you should declare as taxable and which type you should declare as non-taxable. Making smart decisions in this regard can help you to reduce your tax liability.    

A good general rule of thumb to follow is that any income that increases your wealth is considered to be taxable income. Also, understand that most income does not fall under the non-taxable category. That doesn’t necessarily mean, however, that you have no non-taxable income, and assuming that and just declaring everything as taxable can end up hurting you in the long run.

What is Non-Taxable Income?

As mentioned, there honestly isn’t a ton that is non-taxable. However, some things that are typically going to be non-taxable include:

l  Inheritances

l  Healthcare benefits (in most cases)

l  Gifts

l  Cash rebates

l  Bequests

l  Welfare payments

l  Adoption reimbursements

l  Money from a life insurance policy in the case of a death (in some cases)

l  Money from a qualified scholarship that is not used for room and board

What is Taxable Income?

As mentioned, anything that increases your wealth or overall “value,” monetarily speaking, is considered to be taxable income.

This can include things such as:

l  Salaries

l  Childcare fees

l  Commissions

l  Stock options, as well as their interests and dividends

l  Unemployment compensation

l  Royalty payments

l  Strike pay

l  Income from rental properties

l  Alimony

l  Income from fringe benefits

Of course, as with all things, there are some “gray areas” when it come to what is taxable and what is not.

For this reason, it is wise to have a tax/financial professional who can assist you with fully understanding the difference between the two types of income and helping you to make the best possible financial decisions for yourself. While you can figure all of this out on your own, why not make it easier and get professional assistance?

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Tax Implications for Couples in Same Sex Marriages

Today, same-sex couples can enjoy federal benefits that they were previously denied. Keep in mind, however, that these benefits are only extended to married couples, not couples in civil unions or domestic relationships.

However, formally married same-sex couples can now enjoy all of the marriage filing statuses of other couples, including:

l  Married filing jointly

l  Head of household

l  Married filing separately

If you have recently entered into a same-sex marriage, understand that, at the present time, you are entitled to all of the benefits and rights of anyone in a different-sex union.

Some good advice to follow would be to notify the following of your new chosen status:

l  The Social Security Administration

l  Employers

l  The IRS

l  The United States Postal Service

You should also file a new W-4 form as a result of your status change.

You may also find it helpful to find an experienced tax professional who can help you to fully understand your new status and to make the best possible decisions to benefit you and your spouse in your new union.

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How to Boost the Size of Your Tax Refund

Would you like to increase the size of your income tax refund…or maybe just ensure that you get one in the first place? If so, you’ll be glad to know that there are several highly effective strategies that can help you to do just that!

Fewer Allowances = A Bigger Refund

If you’re looking to increase the size of your tax refund, then, when you fill out form W-4 for your employer, you will want to consider claiming fewer allowances. This is because, the more allowances you file, the less money you’ll see come income tax time.   

Of course, allowances do mean you get a larger paycheck throughout the year, but if you’d rather get a nice lump sum come income tax time, declaring fewer allowances is the way to go.

Go for the Earned Income Tax Credit (EITC)

One of the very best options out there for decreasing how much you owe in taxes and thereby increasing the chances of getting a sizable refund is the earned income tax credit. This credit is available to moderate to low-income individuals who:

·         -Have a social security number

·         -Are a U.S. citizen, a resident alien for at least a year, or a non-resident alien who is married to an American citizen or resident alien

·         -Are not a claimed dependent

·        - Have some type of income

You can file for this credit when you file your yearly taxes, but if you need help or have questions about it, be sure to ask an accountant or financial adviser for more information.

Consider a Change in Filing Status

Sometimes, people can easily fit into more than one tax filing status. If that’s you, it is a smart idea to go over your possible options to determine which one is the best fit for you and which one is going to benefit you the most.

There is a good chance that, if you haven’t chosen the right one, you may be getting less of a tax refund than you possibly could. To learn more about the different filing status options and to ensure you choose the very best one for you, speak with a financial professional.

As you can see, there are a great many things that you can do to increase your chances of getting a nice-size refund come tax time. Follow these tips and get professional tax assistance where needed, and you’re likely to enjoy a big, fat check this year!

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Tips to Keep Your Tax Data Safe and Secure

In recent years, the number of complaints related to IRSfraud, scamming, and other types of tax fraud have gone up greatly. Anyone can suddenly find himself the victim of a tax-related crime. With that said, though, there are steps that you can take to greatly reduce the chances of being a tax crime victim and to keep your tax data as safe as possible.

Be Careful in Communication

One thing that you should be aware of is that many tax crimes take place over the internet and/or on the phone. Therefore, you should never give out any sensitive, tax-related information via these forms of communication.

One of the most common scams is for the fraudster to email or phone you, claim you owe money and that action will be taken against you if you do not pay up right then. Another popular scam is an email or phone call from the IRS asking you to update your tax information

Remember, the IRS does not typically contact people via email, and, if you are contacted by phone, proof of whom you are speaking to will be provided if you are actually speaking with an IRS representative. Furthermore, IRS representatives will not ask you for sensitive information via telephone.

It is in your best interest, always, to not share information, such as social security numbers or bank account numbers, over phone or email, regardless of who the speaker or sender claims to be.

Keep Your Computer (And Other Devices) Secure

Another important thing to be aware of is the fact that you likely have a lot of should-be secure information on your computer, tablet, and other devices.

To help keep this information safe should your computer fall into the wrong hands or be looked at by the wrong eyes, password protect any private information stored on your computer. You may also want to encrypt files that contain personal information.

It is also a good idea to avoid storing sensitive passwords, such as the password to your online banking account, in your browser’s “cookies.”

Create Secure Passwords

One final thing that can really be helpful toward improving information security is to be careful when it comes to your online passwords for all accounts.

If someone can get into your email, for example, that person may be able to access other info, such as your credit card information or your social security number, that would enable him to commit a tax crime against you.

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Do You Fall in to America's Most Common Tax Bracket?

It’s hard to believe, but the new year is already here. This means that the holidays are over, and now it’s time to get back to more serious matters, such as preparing your taxes!

If you’re like most Americans, then tax time probably isn’t something you really look forward to, but, unfortunately, it is something that you must deal with.            

The Internal Revenue Service (IRS) estimates that people spend around 8.9 billion hours getting their taxes ready! That time, though, is often well-invested since it can result in sizable federal refunds.

Whether you will get one of those refunds, however, and how much you will have to pay in taxes is dependent upon the income tax bracket that you fall into. The general rule is that, the more you make, the more you will likely end up owing the IRS, though you can sometimes “lessen your load,” so to speak, by taking advantage of tax credits and deductions when possible.

No matter what you end up paying in taxes, you may be curious about whether or not you are considered “average” or if you fall into the most common tax bracket. Your answer to that question is a yes if you fall into the 15% tax bracket, the one with single individuals bringing in adjusted gross incomes between $8,925 and $36,250, with joint filers having incomes of $17,850 to $72,500.

If you don’t fit into that bracket, then you can still be “average.” The second most common tax bracket, surprisingly, was the 0% bracket. People in this bracket got their income to zero because of smart use of deductions and credits.

If you didn’t quite make it into that 0% tax bracket last year, but you’d like to try, then the key is to find a  professional CPA who can assist you with finding the best possible deductions and credits for which you qualify and ensure that you use them to your full advantage. That’s a pretty great way to start the New Year!

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Tips for Reporting Vested Benefits

If you have a job, then there’s a very good chance that you have or at least have heard of “vested benefits.” These are, quite simply, benefits that you are promised but that aren’t quite yours yet- benefits that will become yours after you fulfill a certain requirement, such as staying employed by your employer for a certain amount of time. These vested benefits, however, can be a source of great confusion and concern to employees who are unsure how to report them on their taxes or if they have to report them at all. Fortunately, though, it’s not all that difficult to figure out how vested benefits work.

Understanding Vested Benefits     

First things first, you need to understand what exactly counts as vested benefits. Generally, any benefit that you WILL get but don’t have yet is a vested benefit. Most commonly, these benefits include things like:

·         Shares of stocks

·         Pension benefits

·         Stock options

·         Employer 401k contributions

·         Employer contributions to a retirement account or plan

Benefits may be “cliff vested,” which means you will get them in their entirety at a certain future date, or “graded vested,” which means you will get them in small increments over a pre-determined period of time.

No matter what type of vested benefit you get, the key to remember is that you’ll only need to pay taxes on it if the benefit you receive is taxable, and many of the benefits on the above list are not.  However, for those that are, such as stock shares, you’ll have to pay taxes on them even BEFORE you actually receive them, i.e. before they are fully vested.  For taxable cliff-vested benefits, you’ll need to report the full amount of the benefit as income when you reach the vesting date. For graded-vested benefits, you only have to report the amount in taxable benefits you actually received that year.

If you can keep these helpful tips in mind and always checkin with your accountant or other financial adviser on how benefits affect you and your taxes, you should have no problem enjoying your vested benefits…and making sure you pay on them as you’re supposed to!

Can Your Boat or RV Count as your Home for Tax Deductions?

Did you know that not all “primary residences” are traditional houses or apartments? Believe it or not, some people actually declare their boats or their recreational vehicles (RVs) as their main or secondary residences. If you own one of these dwellings, then there’s a good chance you may be eligible to do the same…and to enjoy some tax deductions as a result.

Is Your Boat or RV Eligible?

Camping boat P1 (Photo credit: Wikipedia)

Of course, not every boat or RV is eligible to count as a primary or secondary residence. In order to meet this qualification, the structure must have at least the following:

·         A place/area for sleeping

·         Toilet facilities

·         Cooking facilities

If it turns out that your boat or RV meets these three criteria and is, indeed, eligible to count as a residence for tax purposes, you must decide how to designate it. Designating it as your main residence is a little trickier since you can only have ONE residence as your main residence and it must be the one where you spend most of your time each year. For most people, then, their boat or RV won’t qualify, but if you do actually spend most of your time on your boat or RV, even if it doesn’t have a permanent location, you can claim it as your primary residence. When you do this, you can take homeowner deductions, which will help to lower your taxes, and you can also deduct mortgage interest paid if the boat or RV was used as security for the loan you used to purchase it.

Even if, like most people, your boat or RV can’t count as your primary home, there’s a good chance it could still qualify as a secondary home, which comes with some benefits of its own. So, either way, if you own a boat or an RV, it’s a good idea to determine how to classify it and to hopefully do so in a way that saves you money!

The Affordable Care Act and Self Employment

Barack Obama signing the Patient Protection and Affordable Care Act at the White House (Photo credit: Wikipedia)

Being self-employed comes with many great benefits, including the fact that you get to set your own hours and to work as much or as little as you want and need. However, not EVERYTHING about self-employment is easy. To start with, there’s the fact that you have to secure your own health insurance and understand how the Affordable Care Act affects you.

Fortunately, though, understanding the Affordable Care Act and general self-employment insurance information isn’t all that hard. Before you dive in to all that, though, make sure that you actually meet the IRS definition of “self-employed.” In order to do that, you must either run a business as a sole proprietor, be an independent contractor/freelancer, or otherwise generate income without employees other than yourself. You may also qualify as self-employed if you are part of a business/trade partnership.

Once you’re sure that you qualify as self-employed,then you have some decisions to make related to your health insurance coverage. If you don’t have insurance, you are, under the Affordable Care Act, legally bound to, so you’ll need to get it. To get coverage or to change it, you can visit the Health Insurance Marketplace during open enrollment and find the best insurance to meet your needs.

Knowing which type of insurance to select, how to get all the discounts, deductions, and exemptions you are entitled to, and making sure you pick all the right coverage can be a bit confusing, especially with so many options- all at such vastly different prices- available. For this reason, it can be smart to visit with a financial adviser to help you choose the right insurance to meet your needs and to ensure that you don’t miss out on any possible savings. Getting insured can be tricky, but it will be worth it in the end when you’re fully covered and protected!

Protect Yourself from Phishing

Have you heard of phishing scams? You probably have since, at this point, they’ve been around for quite some time. Just in case, though, these are scams through which scammers attempt to get sensitive personal information from you, and, if successful, use that information to do you harm. And, while countless warnings have been issued about these scams, they are, sadly, still alive and well, which is why it’s so very important to fully understand what they are, how they work, and how to protect yourself.   

Most phishing happens via email. Typically, the person (potential victim) is sent an email that sounds quite legitimate but directs the potential victim to a falsified website where he or she will be asked to provide personal information, such as a credit card number, a social security number, or a private password. These emails may seem to come from one’s bank, the IRS, one’s credit card company, or a social media account, but, in reality, they come from harmful sources that will use this information to their own benefit and to the victim’s detriment.

Some commonly run phishing scams include:

·         -Emails promising money or a refund of some sort…if you fill out a form to redeem it

·         -Emails warning you that your credit card funds have been used by an outside source and you can reclaim them by visiting a website and “verifying” your information

·        -Emails promising lottery winnings or inheritances if you just provide your personal information

-If you encounter a phishing scam or even THINK that you might have, remember these “golden rules” that will keep you safe from phishing:

·         -Never click links or open attachments unless you know FOR SURE who the sender is

·         -Immediately report any phishing emails to the appropriate source

·         -Be wary of emails that do not include your actual name

·         -Be wary of “professional” emails full of grammar and spelling errors

·         -Falsified web addresses/ web addresses that LOOK legitimate except for some small difference

By knowing what to look for and being on your guard, you can keep phishing from happening to you! Spread the word to others, too, so that your friends and family will be protected.

What You Need to Know About Amended Returns

When you send in your tax forms each year, you hope against hope that they are perfect and correct. Unfortunately, though, as humans, we all make mistakes from time to time, and sometimes, you may find that you’ve forgotten to include some extra income you’ve earned or made some other kind of mistake. If this happens to you, don’t beat yourself up! After all, taxes are complex, making it easy to make mistakes. Furthermore, when you do make a mistake, it’s not that hard to correct it. You simply need to, in most cases, file an amended return.   

Amended returns, which basically allow you to change things about the original return that you filed, are fairly simple and straightforward. While you can file them in a variety of situations, some of the most common reasons for filing them include:

l  You’ve forgotten to include extra income

l  You’ve missed deductions or credits

l  You entered an incorrect filing status

l  You inaccurately reported your dependents

l  You made a mistake when reporting your total income

Keep in mind, of course, that amended tax returns are only necessary if your return is accepted by the IRS. When that happens, it’s up to you to bring the error to the attention of the IRS. If the return gets rejected, though, you can fix the return by simply re-filing it. Also, understand that, when it comes to matters of simple mathematical errors, the IRS will often catch and fix these for you without rejecting your return and without you having to file an amended return.

If you do ultimately need to file an amended return, either do it yourself via form 1040X, or, even better yet, visit with an accountant who can help you to file the amended return and, hopefully, to not make further filing mistakes in the future!

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Wedding Bells and Taxes

Are you getting married in the near future? Or, maybe you’ve already tied the knot just recently. Whatever the case, you should know that making this major life step affects your taxes in major ways, and one of the first things you’ll need to check up on is your tax withholdings.  

The reason this is important is because, when you get married, more often than not, your income tax liability changes due to the sudden addition of your spouse’s income or of your spouse in general. This change may mean you get to withhold more or less, depending on the specifics of your situation, but, either way,it’s important to adjust your withholdings accordingly so that you don’t end up paying too much or not enough on your taxes.   

If you’re not sure how your spouse’s income, or, if your spouse doesn’t have an income, your marriage will affect your taxes, then speak to your workplace’s human resources department or to your financial adviser to learn more and make sure you’re doing everything correctly.

Another thing that you may want to think about if you’re getting married or have recently done so and have a spouse or soon-to-be-spouse who doesn’t work is opening a spousal IRA. When you have a non-working spouse and have filed as married filing jointly, this great option can help you both to begin saving for your future together.

Of course, the decision of whether or not to file jointly or separately is a whole other ball of wax altogether, and what you should do will vary greatly depending on the specifics of your situation. For that reason and because you’re going through such a major change when you marry, it’s always smart to check in with your financial adviser (or to find one!) during this and any other times of transition that affect you financially.

Filing Taxes for a Deceased Loved One

Logo of the Internal Revenue Service (Photo credit: Wikipedia)

The loss of a loved one, especially a close family member, is one of the hardest things people have to go through. Unfortunately, though, when a loved one does pass away, there are still practical and financial matters that have to be considered, such as how to file taxes for that person.  

Generally, an important rule to understand is that, when a person dies, if any income for that person is going to be claimed, a final tax return does have to filed. Typically, the person who will be required to do that filing will be the executor or administrator of the deceased person’s estate. If there isn’t one, then a loved one will need to do it by the regular tax deadline.

If that responsibility falls on you, you will need to make a note that your loved one is deceased after filling out the person’s name on the tax return. Go ahead and claim any income received up to the date of death, as well as tax deductions and credits that would have been claimed if the person had not died. Basically, other than noting that the person has since passed on, all other tax related matters, at least when it comes to filing the return, stay the same.

Refunds may still be claimed on deceased persons taxes as well, though a special form- IRS Form 1310, which is designed for this specific purpose- must be used.

If you have any other questions or concerns related to filing a return or other tax matters for the deceased, be sure to contact your financial adviser. Obviously, this can be a sensitive and difficult issue, but if you follow these tips and get professional help as needed, you can make it easier to successfully file all required taxes during this difficult time.

How Your Child Can Help Your Taxes

When it comes to having kids, there are some great things about being a parent…as well as some not so great things.Despite the tough parts and all the responsibilities that go along with parenthood, however, there are some perks, including financial ones! In fact, there are actually quite a few tax breaks and credits that you should know about and take advantage of if you’re a parent.  

The Dependent Exemption

First things first, when you have a child of your own or even any kind of dependent, you can claim a dependent exemption on your taxes. This amount varies per year, but the most recent figure was $4,050 per dependent. With this exemption, you’ll be able to reduce your taxable income, which can really help when it comes to lowering your taxes overall.

Child Care/ Dependent Care Credit

If you have a child or a dependent who is under the age of 13 and whom you have to place in child care or some other kind of supervisory care while you work or look for work, you are likely eligible for the child and dependent care credit.

You can get a nice deduction, up to a certain amount, off of what you pay for qualifying child care. Before applying for this credit, just make sure you know how much of a deduction you are eligible for, based on current rates and the number of children/dependents in care, and other factors. As long as you file the credit correctly, it can really help you to save big!

These are just two of many excellent financial bonuses to having a child or other dependent, so make sure you are taking advantage of these and other great money-saving methods for which you are eligible as a parent/caregiver. Your accountant should also be able to fill you in on any credits or deductions you may have missed, so it doesn’t hurt to double-check!

Your First Home and How it Affects Your Taxes

So, you’re buying your first home! Congratulations are definitely in order as you take this huge step! In the midst of all the excitement and celebration over your new home, however, make sure that you think about how this decision will affect your taxes.   

Mortgage Interest Deductions

One thing to remember as you start your journey toward being a homeowner is that the interest you pay on your mortgage is fully tax deductible. Obviously, you don’t want to miss out on this nice break on your taxes, so be sure to accurately calculate the interest portion of your payment to make sure you get your full tax break.

Deductions for Charitable Giving

You might not think that charitable giving has a lot to do with home owning, but, the truth is, many people only become eligible for itemized deductions, such as the deduction from charitable giving, after they become homeowners. This is typically due to their mortgage interest, real estate taxes, and other things related to home ownership. So, if you’ve been giving for a long time, it’s smart to check and see if you’re now eligible to benefit from your giving, and if not, it may be time to start!

Closing Statement Savings

As a final word of wisdom, be sure you save your closing statement! You might find that some of the expenses you’ve incurred, which are listed on your statement, are tax deductible, which can save you more money come tax time. If you’re not sure what, if anything, is tax deductible, just ask your accountant for help!

In fact, a good accountant can help you to navigate all of the changes that come with home ownership and to help you to use them to your benefit, so that you get not just a home, but some nice financial rewards and incentives as well!

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How Foreclosure Affects Your Taxes

Having your home foreclosed upon is a horrible thing. Not only does it affect your credit negatively, but it can also leave you homeless if you don’t have a backup plan or anywhere else to go! Because foreclosure is so awful, you should absolutely do everything within your power to prevent it from happening, even if it means taking out a loan, refinancing, or just working out some kind of plan with your mortgage lender. If it’s past that point, however, and your home has already been foreclosed on, then all you can do is roll with the punches and follow our advice as to how to showcase this information on your taxes.   

The good news is that, in many cases, you can actually exclude any “forgiven debt” from your income thanks to the recent Mortgage Forgiveness Debt Relief Act. Under this act, you can exclude any discharged debt from your foreclosure, up to $2 million! There are, though, some exceptions and rules that go along with this that you should be aware of:

l  The forgiven debt MUST be related to the foreclosure of your PRIMARY residence, I.e. the home you actually live in or spend most of your time in

l  The debt must have been forgiven prior to January 1, 2017

l  If the above qualification is not met, the written agreement on the home must have been entered into in 2016

If you’re feeling bummed because you don’t qualify to have your debt excluded from your income, know that it is very likely that the act will be extended, continuing your allowance. No one will know for sure, though, until IRS laws are updated regarding this matter.

In any case, if you go through a foreclosure or any other major change that affects your finances, it’s always good to check in with an accountant and see how your taxes are affected and what you can do to mitigate any damage.