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Tax Tips Easy-to-understand tips to keep more of your money

Let's face it, taxes can be confusing. But you're not alone. Here are some of Dave's tax tips to help you through different stages in your life. If you have questions or need help with your taxes, you should always contact a tax professional.

Lost Your Job

Getting laid off is scary, especially if you have a spouse and kids. It's important to know how to manage your money in that situation.

Unemployment compensation is taxable

A severance package counts as taxable income, including any money you get paid for accumulated vacation or sick time. Unlike wages, no tax is withheld from unemployment pay. So make sure to hold back about a quarter of that money for taxes.

Remember this: the sooner you are able to find another job, the more that severance money will look like a huge bonus. If you can get an income stream flowing again, you can use that severance to save or attack your debt. But, again, make sure to withhold some for taxes.

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New Baby

In order to claim your new child as a dependent on your tax return, the first thing you need to do is get him or her a Social Security number. If you don't, you'll delay the process. You can request a Social Security card at the hospital when you apply for a birth certificate.

$1,000 Child Credit

Kids are great. A new baby gives you a tax credit and the ability to claim a tax deduction until your child reaches the age of 17. With a credit, your tax bill is reduced dollar for dollar, while a deduction reduces the amount of income that Uncle Sam can touch. Income limits do apply, so ask your local tax pro for details.

Single Parent

If you're a single parent, you may be able to file your returns as head of household rather than single. The advantage? You get a bigger standard deduction, and you'll fit into a better tax bracket. In order to be considered head of household, you must pay more than half the cost of providing a home for a qualifying person (your child).

Newly Married

Remember, you and your sweetie might need to adjust your withholdings from work.

If you get a big tax refund each year, it doesn't mean that you are getting a bonus from the government. You overpaid your taxes from the previous year, and they are just sending back your overpayment. That's a bad idea. You just let the government use your money interest-free for one year. Make that money work for you!

Make sure that both of you adjust your withholdings at work. When you pay your taxes each year, you want to come as close to zero as possible (meaning you don't owe the government, and they don't owe you). This is true for singles and married couples.

Sending Kids to College

Did you know that Uncle Sam lets you deduct some of your tuition costs? Depending on your income and filing status, you can deduct up to $4,000 of college tuition and related fees. Also, you don't have to itemize your deductions to claim it. Not a bad deal.

However, not all tuition and fees are eligible for the deduction. Only certain tuition costs and fees qualify, so you should speak with a tax advisor to see if you can save a few thousand dollars this year.

The American Opportunity Credit has been extended through 2017. Each eligible student can qualify for a maximum credit of $2,500.

Death in the Family

The federal estate tax applies only to estates that exceed $5.25 million, but state estate taxes can vary. Consult your local tax professional to find out how the laws affect your situation.

You will also need to file a final income tax return to comply with tax laws that ensure taxes on your loved-one's income, before his or her death, doesn't go uncollected. That responsibility falls to the executor of the estate or, if there is not an executor, a family member. The tax return is filled out the same way as if he or she was still alive, but "deceased" is written after the taxpayer's name.

New Job

If you are tired of your current job and need a change of scenery, you can possibly deduct some expenses that pertain to job hunting. Examples include printing and mailing your resume, fees you pay to a job search agency, and even travel expenses if you are looking for work in another state.

There are rules, though. First, the job you're looking for must be in the same line of work as your previous job. Second, and perhaps the most important, job-hunting costs are considered miscellaneous expenses. You can only deduct those kinds of expenses if they exceed 2% of your adjusted gross income.

Other costs are associated with a job change (such as selling your home and moving costs) that may help your tax situation. Check with one of our Endorsed Local Providers (ELPs) for more information.

Lost Your Job

Getting laid off is scary, especially if you have a spouse and kids. It's important to know how to manage your money in that situation.

Unemployment compensation is taxable

A severance package counts as taxable income, including any money you get paid for accumulated vacation or sick time. Unlike wages, no tax is withheld from unemployment pay. So make sure to hold back about a quarter of that money for taxes.

Remember this: the sooner you are able to find another job, the more that severance money will look like a huge bonus. If you can get an income stream flowing again, you can use that severance to save or attack your debt. But, again, make sure to withhold some for taxes.

Your First Job

Since you're now getting paid, Uncle Sam thinks he should be paid, too. Get used to taxes coming out of your paycheck because it will never stop. But the good news is that you may be able to deduct certain expenses associated with your job, such as relocation costs if you moved over a certain number of miles.

To find out all the expenses you can deduct, make an appointment with a tax expert.

Selling a Home

Here is a great law. If you want to sell your home and have lived in it for 2 of the 5 years before the sale, then any profit you make on it (up to $250,000 for individuals and $500,000 for married filing jointly) is TAX-FREE!

There are 3 "tests" that you must pass in order to take advantage of this tax-free law. You must have owned the home for at least 2 of the 5 years before the sale, you must have used it for your primary residence for 2 of the 5, and you must not have excluded the $250,000/$500,000 gain on the sale of another home within 2 years prior to the sale of your current home.

There are other conditions that might allow you to qualify as well, such as a job change or a divorce. One of our tax ELPs can help you there.

Homeowner Tax Deductions

During tax season, it helps to think of your home as one giant tax deduction. You can deduct:
  • Property taxes.
  • Mortgage interest on your primary residence and a secondary residence.
  • Certain home improvements.
  • Interest paid on a home-equity loan or home-equity line of credit.
  • • Premiums paid for private mortgage insurance (PMI), if you took out a first mortgage after 2006.
  • Plus much more!

Ministers

If you are a minister, your earnings are subject to the self-employed tax unless you receive an exemption. If you are conscientiously opposed to public insurance because of your religious beliefs, then you can claim an exemption.

Remember, this exemption is permanent. But, you should do so because you'll keep more of the money you earn and can thus make better investment choices with it.

Work From Home

Poor money management is one of the top reasons that small businesses go out of business. They don't set aside enough money from profits to pay taxes, and they get in trouble with the IRS. The first thing you should do with your profit is to set aside a quarter of the money in a separate business account for taxes.

Always keep your personal and business financial records separate. If you write business expenses out of your personal account, you will severely mess up your records. That's bad enough during any time of the year. But when it comes time to pay your taxes, you'll have an accounting nightmare.

Home Office Deduction

Using part of your home as a home office can have great tax advantages, but you must be very clear and deliberate with how you use it. According to the tax law, your home office must be "exclusively and regularly" used for business purposes.

In other words, you must have one room that is "all business" to qualify for the tax deduction. You can't also use this area as a kids' playroom or television room. This is a great benefit if you work from home.

You can use the new simplified method in most cases to calculate your home office deduction. Just multiply the area of your home office (up to 300 square feet) by $5, the prescribed rate.

April 15, 2014

Tax day falls on its traditional date, April 15. So you'll have until midnight on Tuesday, April 15, 2014, to postmark or eFile your 2013 tax returns.

For those who would like to get a jump on their taxes, the IRS plans to begin processing tax forms Thursday, January 30.

Here are some other actions  that must be completed by April 15:

  • File any tax extensions
  • Make quarterly estimates for the first three months of the current year
  • Contribute to an IRA for the previous year

Childcare Expenses

Working parents, don’t miss this tax break on your childcare expenses. You qualify if:

  • Your child is younger than age 13, and
  • You pay someone else to watch your child while you work or look for work, and
  • You and your spouse have earned income, or one of you is a full-time student.

You can receive a 20–35% tax credit for up to $3,000 of your childcare expenses for one child, or up to $6,000 for two or more children. The credit is based on your income, so the more you make, the less credit you’ll receive.

If it’s available at your workplace, you might get a better deal by paying for childcare expenses through a Flexible Spending Account (FSA). The money you contribute is subtracted from your paycheck pre-tax, which means you’ll avoid paying federal, Social Security and Medicare taxes on that money. So, contributing the maximum $5,000 can save you at least $1,133—more if you are in a higher tax bracket. You’ll save even more if you live in a state that has an income tax.

Moving Expenses

If you relocated for a new job last year, and you had to move at least 50 miles from your old home, you can deduct your moving expenses. Even better, you can take this deduction even if you don’t itemize.

Some expenses that qualify:

  • Packing materials
  • Hiring a moving company
  • Truck rental
  • Storage of your belongings within 30 days of your move
  • Travel expenses for your family
  • Mileage, if you drove your car

You also qualify if you moved to take your first job out of school. IRS Form 3903 will give you more information and help you calculate your expenses.

Home Improvements

Residential Energy Efficient Property Credit

You could receive a tax credit for up to 30% of the cost to purchase and install items like solar hot water heaters, solar electricity equipment and wind turbines in your home. The credit is available through 2016, and there is no cap on the credit for most improvements. Ask your tax expert for more details.

Small Business Losses

It’s been a hard time for a lot of businesses, so Uncle Sam is allowing all businesses, regardless of size, to “carry back” operating losses to offset taxable income in three to five taxable years. Translation: you could receive a tax refund on past years’ returns based on operating losses that occurred between December 31, 2007 and January 1, 2010.

Check with your tax ELP for more detailed information.

 

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