Tax Credits & Deductions

Tax Tips for Deducting Gifts to Charity

Tax Tips for Deducting Gifts to Charity

The holiday season often prompts people to give money or property to charity. If you plan to give and want to claim a tax deduction, there are a few tips you should know before you give. For instance, you must itemize your deductions. Here are six more tips that you should keep in mind:

1. Give to qualified charities. You can only deduct gifts you give to a qualified chariDonationty. Use the IRS Select Check tool to see if the group you give to is qualified. You can deduct gifts to churches, synagogues, temples, mosques and government agencies. This is true even if Select Check does not list them in its database.

2. Keep a record of all cash gifts.  Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods must be in good condition.  Household items include furniture, furnishings, electronics, appliances and linens. These items must be in at least good-used condition to claim on your taxes. A deduction claimed of over $500 does not have to meet this standard if you include a qualified appraisal of the item with your tax return.

4. Additional records required.  You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts.  Deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2015. This is true even if you don’t pay the credit card bill until 2016. Also, a check will count for 2015 as long as you mail it in 2015.

6. Special rules.  Special rules apply if you give a car, boat or airplane to charity. If you claim a deduction of more than $500 for a noncash contribution, you will need to file another form with your tax return. Use Form 8283, Noncash Charitable Contributions to report these gifts. For more on these rules, visit IRS.gov.

Information from IRS Special Edition Tax Tip 2015-20 was used in this blog post.

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Back-to-School Education Tax Credits

If you, your spouse or a dependent are heading off to college in the fall, some of your costs may save you money at tax time. You may be able to claim a tax credit on your federal tax return. Here are some key IRS tips that you should know about e tax credits:

  • American Opportunity Tax Credit. The AOTC is worth up to $2,500 per year for an eligible student. You may claim this credit only for the first four years of higher education. Forty percent of the AOTC is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.
  • Lifetime Learning Credit.  The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
  • One credit per student. You can claim only one type of education credit per student on your tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For instance, you can claim the AOTC for one student, and claim the LLC for the other.
  • Qualified expenses. You may use qualified expenses to figure your credit. These include the costs you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more on the rules that apply to each credit.
  • Eligible educational institutions. Eligible schools student landscapeare those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible:

o Ask your school if it is an eligible educational institution, or o See if your school is on the U.S. Department of Education’s Accreditation database.

  • Form 1098-T. In most cases, you should receive Form 1098-T, Tuition Statement, from your school by Feb. 1, 2016. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid. That might happen because some of your related costs may not appear on the form. For instance, the cost of your textbooks may not appear on the form. However, you still may be able to include those costs when you figure your credit. Don’t forget that you can only claim an education credit for the qualified expenses that you paid in that same tax year.
  • Nonresident alien. If you are in the United States on an F-1 Student Visa, the tax rules generally treat you as a nonresident alien for federal tax purposes.  To find out more about your F-1 Student Visa status, visit U.S. Immigration Support. To learn more about resident and nonresident alien status and restrictions on claiming the education credits, refer to Publication 519, U.S. Tax Guide for Aliens.
  • Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

Information from IRS Tax Tip 2015-14 was used in this blog post.

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Moving Expense Deduction

Moving Expense Deduction

If you move your home you may be able to deduct the cost of the move on your federal tax return next year. This may apply if you move to start a new job or to work at the same job in a new location. In order to deduct your moving expenses, your move must meet three requirements:

  1. Your move must closely relate to the start of work. In most cases, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
  2. Your move must meet the distance test. Moving Expense Flow ChartYour new main job location must be at least 50 miles farther from your old home than your prior job location. For example, let’s say that your old job was three miles from your old home. To meet this test, your new job must be at least 53 miles from your old home.
  3. You must meet the time test.  You must work full-time at your new job for at least 39 weeks the first year after the move. If you’re self-employed, you must also meet this test. In addition you must work full-time for a total of at least 78 weeks during the first two years at the new job site. If your tax return is due before you meet the time test, you can still claim the deduction if you expect to meet it.

 

See Publication 521, Moving Expenses (page 5), for more information about the rules.

If you qualify for this deduction, here are a few more tips from the IRS:

  • Travel.  You can deduct certain transportation and lodging expenses while moving. This applies to costs for yourself and other household members while moving from your old home to your new home. You may not deduct your travel meal costs.
  • Household goods and utilities.  You can deduct the cost of packing, crating and shipping your property. This may include the cost to store or insure the items while in transit. You can deduct the cost to disconnect or connect utilities at your old and new homes.
  • Expenses you can’t deduct.  You may not deduct:
    • Any part of the purchase price of your new home.
    • The cost of selling your home.
    • The cost of breaking or entering into a lease.

See Publication 521 for more examples.

  • Reimbursed expenses.  If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You must report any taxable amount on your tax return in the year you get the payment.
  • Address change.  When you move, make sure to update your address with the IRS and the U.S. Post Office. To notify the IRS, file Form 8822, Change of Address.

Information from IRS Summertime Tax Tip 2015-20 was used in this blog post.

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Deducting Charitable Contributions

Deducting Charitable Contributions

When you give a gift to charity that helps the lives of others in need. It may also help you at tax time. You may be able to claim the gift as a deduction that may lower your tax. Here are eight tax tips you should know about deducting your gifts to charity:

1. Qualified Charities.  You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates. To check the status of a charity, use the IRS Select Check tool.

2. Itemized Deduction.  To deduct your Donationcontributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.

3. Benefit in Return.  If you get something in return for your donation, your deduction is limited. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.

4. Donated Property.  If you gave property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Clothing and Household Items.  Used clothing and household items must be in at least good condition to be deductible in most cases. Special rules apply to cars, boats and other types of property donations. See Publication 526, Charitable Contributions, for more on these rules.

6. Form 8283.  You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7. Records to Keep.  You must keep records donation receiptto prove the amount of the contributions you made during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. For more about what records to keep refer to Publication 526.

8. Donations of $250 or More.  To claim a deduction for donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

Information from IRS Tax Tip 2015-47 was used in this blog post.

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Adoption Tax Benefits

Adoption Tax Benefits

If you adopted or tried to adopt a child in 2014, you may qualify for a tax credit. If your employer helped pay for the costs of an adoption, you may be able to exclude some of your income from tax. Here are some things you should know about adoption tax benefits.

  1. Credit or Exclusion.  The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.
  2. Maximum Benefit.  The maximum adoption tax credit and exclusion for 2014 is $13,190 per child.
  3. Credit Carryover.  If your credit is more Adoption Handsthan your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2014, you can use it to reduce your taxes for 2015. You can do this for up to five years, or until you fully use the credit, whichever comes first.
  4. Eligible Child.  An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.
  5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees and travel.
  6. Domestic or Foreign Adoptions. In most cases, you can claim the credit whether the adoption is domestic or foreign. However, the timing rules for which expenses to include differ between the two types of adoption.
  7. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit ($13,190 in 2014) even if you didn’t pay any qualified adoption expenses.
  8. No Double Benefit. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.
  9. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.

Information from IRS Tax Tip 2015-35 was used in this blog post.

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Tax Information Regarding the Child and Dependent Care Tax Credit

Tax Information regarding the Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit can reduce the taxes you pay. If you paid someone to care for a person in your household last year while you worked or looked for work, then read on for facts from the IRS about this important tax credit:

1. Child, Dependent or Spouse.  You may be able Child and Dependent Care Tax Creditto claim the credit if you paid someone to care for your child, dependent or spouse last year.

2. Work-Related Expense.  The care must have been necessary so you could work or look for work. If you are married, the care also must have been necessary so your spouse could work or look for work. This rule does not apply if your spouse was disabled or a full-time student.

3. Qualifying Person.  The care must have been for “qualifying persons.” A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care.

4. Earned Income.  You must have earned income for the year, such as wages from a job. If you are married and file a joint tax return, your spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.

5. Credit Percentage / Expense Limits.  The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more.

6. Dependent Care Benefits.  If your employer gives Child and Dependent Care Tax Credityou dependent care benefits, special rules apply. For more on these rules see Form 2441, Child and Dependent Care Expenses.

7. Qualifying Person’s SSN.  You must include the Social Security Number of each qualifying person to claim the credit.

8. Care Provider Information.  You must include the name, address and taxpayer identification number of your care provider on your tax return.

Information from IRS Tax Tip 2015-36 was used in this blog.

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Home Office Deduction Tips

The following post is six tips to know in claiming a home office deduction.

If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify you can claim the deduction whether you rent or own your home. If you qualify for the deduction you may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction.

  1. Regular and Exclusive Use.  As a general rule, Home officeyou must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:
  • Your principal place of business, or
  • A place where you meet clients or customers in the normal course of business, or
  • A separate structure not attached to your home. Examples could include a garage or a studio.
  1. Simplified Option.  If you use the simplified option, you multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the criteria for who may claim a home office deduction.
  2. Regular Method.  If you use the regular method, the home office deduction includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.
  3. Deduction Limit.  If your gross income from 8829 Flow Chartthe business use of your home is less than your expenses, the deduction for some expenses may be limited.
  4. Self-Employed.  If you are self-employed and choose the regular method, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.
  5. Employees.  If you are an employee, you must meet additional rules to claim the deduction. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

 

Information from IRS tax tip 2015-42 was used in this post.

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Home Energy Tax Credits

Cut Taxes and Save on Energy Bills with Home Energy Credits

You can reduce your taxes and save on your energy bills with certain home improvements.  Here are some key facts that you should know about home energy tax credits:

Residential Energy Efficient Property Creditgreen-tax-credit

  • This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
  • Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
  • There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
  • The home must be in the U.S. It does not have to be your main home, unless the alternative energy equipment is qualified fuel cell property.
  • This credit is available through 2016.

Non-Business Energy Property Credit 

  • Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
  • The other part of the credit is not a percentage of the cost. This part of the credit is for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
  • This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
  • Your main home must be located in the U.S. to qualify for the credit.
  • Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
  • This credit had expired at the end of 2013. The Tax Increase Prevention Act extended it to apply for one year, through Dec. 31, 2014. You may still claim the credit on your 2014 tax return if you didn’t reach the lifetime limit in prior years.

 

Information from IRS tax tip 2015-38 was used in this blog post.

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Claiming a Tax Deduction for Medical and Dental Expenses

Claiming a Tax Deduction for Medical and Dental Expenses

Your medical expenses may save you money at tax time, but a few key rules apply. Here are some tax tips to help you determine if you can claim a tax deduction:

  • You must itemize.  You can only claim your medical expenses that you paid for in 2014 if you itemize deductions on your federal tax return. If you take the standard deduction, you can’t claim these expenses.
  • AGI threshold.  You include all the qualified medical-expenses-650medical costs that you paid for during the year. However, you can only deduct the amount that is more than 10 percent of your adjusted gross income.
  • Temporary threshold for age 65.  If you or your spouse is age 65 or older, the AGI threshold is 7.5 percent of your AGI. This exception applies through Dec. 31, 2016.
  • Costs to include.  You can include most medical and dental costs that you paid for yourself, your spouse and your dependents. Exceptions and special rules apply. Costs reimbursed by insurance or other sources do not qualify for a deduction.
  • Expenses that qualify.  You can include the costs of diagnosing, treating, easing or preventing disease. The costs you pay for prescription drugs and insulin qualify. The costs you pay for insurance premiums for policies that cover medical care qualify. Some long-term care insurance costs also qualify. For more examples of costs you can and can’t deduct, see IRS Publication 502, Medical and Dental Expenses. You can get it on IRS.gov/forms anytime.
  • Travel costs count.  You may be able to claim travel costs you pay for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 23.5 cents per mile for 2014.
  • No double benefit.  You can’t claim a tax deduction for medical expenses you paid for with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free. This rule prevents two tax benefits for the same expense.
  • Arizona tax benefit. The State of Arizona Arizonaallows taxpayers to itemize deductions on their Arizona return even if they did not itemize the federal return. You do not have to reduce your medical expenses by a percentage of your federal AGI, so in most cases, the medical deduction allowed on the Arizona return will be larger than the deduction allowed on the federal return.

 

Information from IRS Tax Tip 2015-31 was used in this post

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Earned Income Tax Credit Tips

Since 1975, the Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break each year. Four out of five eligible workers claim EITC, but the IRS wants everyone who is eligible to claim this credit. Here are some things you should know about this valuable credit:

• Review your eligibility.  If you worked and earned under EITC$52,427, you may qualify for EITC. If your financial or family situation has changed, you should review the EITC eligibility rules. You might qualify for EITC this year even if you didn’t in the past. If you qualify for EITC you must file a federal income tax return and claim the credit to get it. This is true even if you are not otherwise required to file a tax return. Don’t guess about your EITC eligibility. Use the EITC Assistant tool on IRS.gov. The tool helps you find out if you qualify and estimates the amount of your EITC.

• Know the rules.  You need to understand the rules before you claim the EITC, to be sure you qualify. It’s important that you get this right. Here are some factors you should consider:

o Your filing status can’t be Married Filing Separately.

o You must have a Social Security number that is valid for employment for yourself, your spouse if married, and any qualifying child listed on your tax return.

o You must have earned income. Earned income includes earnings from working for someone else or working for yourself.

o You may be married or single, with or without children to qualify. If you don’t have children, you must also meet age, residency and dependency rules. If you have a child who lived with you for more than six months of 2014, the child must meet age, residency, relationship and the joint return rules to qualify.

o If you are a member of the U.S. Armed Forces serving in a combat zone, special rules apply.

• Lower your tax or get a refund.  The EITC reduces your federal tax and could result in a refund. If you qualify, the credit could be worth up to $6,143. The average credit was $2,407 last year.

Information from IRS Tax Tip 2015-09 was used in this report. For more information please contact our office.

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