Most taxpayers claim the standard deduction when they file their federal tax return. However, some filers may be able to lower their tax bill by itemizing. Find out which way saves the most money by figuring taxes both ways.
Figure Your Itemized Deductions. Taxpayers need to add up deductible expenses they paid during the year. These may include expenses such as:
- Home mortgage interest
- State and local income taxes or sales taxes (but not both)
- Real estate and personal property taxes
- Gifts to charities
- Casualty or theft losses
- Unreimbursed medical expenses
- Unreimbursed employee business expenses
Special rules and limits apply.
Know The Standard Deduction. If a taxpayer doesn’t itemize, then the basic standard deduction for 2016 depends on their filing status. If the taxpayer is:
- Single - $6,300
- Married Filing Jointly - $12,600
- Head of Household - $9,300
- Married Filing Separately - $6,300
- Qualifying Widow(er) - $12,600
If a taxpayer is 65 or older, or blind, the standard deduction is higher than the previous amounts. The deduction may be limited if the taxpayer can be claimed as a dependent.
Check the Exceptions. There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if the taxpayer is married filing a separate return and their spouse itemizes. In this case, the taxpayer’s standard deduction is zero and they should itemize any deductions.
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
Taxpayers with children may qualify for certain tax benefits. Parents should
consider child-related tax benefits when filing their federal tax return:
- Dependent. Most of the time,
taxpayers can claim their child as a dependent. Taxpayers can generally deduct $4,050 for each qualified dependent. If the
taxpayer’s income is above a certain limit, this amount may be reduced.
- Child Tax Credit. Generally, taxpayers
can claim the Child Tax Credit for each qualifying child under the age of
17. The maximum credit is $1,000 per child. Taxpayers who get less than
the full amount of the credit may qualify for the Additional Child Tax
Credit.
- Child and Dependent Care
Credit. Taxpayers may be able to claim this credit if they paid for the care of
one or more qualifying persons. Dependent children under age 13 are among
those who qualify. Taxpayers must have paid for care so that they could
work or look for work.
- Earned Income Tax
Credit. Taxpayers who worked but earned less than $53,505 last year should look
into the EITC. They can get up to $6,269 in EITC. Taxpayers may qualify
with or without children.
- Adoption Credit. It is possible to claim
a tax credit for certain costs paid to adopt a child.
- Education Tax Credits. An education credit can
help with the cost of higher education. Two credits are available: the American
Opportunity Tax Credit and the Lifetime
Learning Credit. These credits may reduce the amount of tax owed. If
the credit cuts a taxpayer’s tax to less than zero, it could mean a
refund. Taxpayers may qualify even if they owe no tax.
- Student Loan Interest. Taxpayers may be able
to deduct interest paid on a qualified student loan. They can claim this
benefit even if they do not itemize deductions.
- Self-employed Health
Insurance Deduction. Taxpayers who were self-employed and paid for health
insurance may be able to deduct premiums paid during the year.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
The Child Tax Credit is a tax credit that may save taxpayers up to $1,000 for each eligible qualifying child. Taxpayers should make sure they qualify before they claim it. Here are five facts from the IRS on the Child Tax Credit:
1. Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:
- Age. The child must have been under age 17 on Dec. 31, 2016.
- Relationship. The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother or half-sister. The child may be a descendant of any of these individuals. A qualifying child could also include grandchildren, nieces or nephews. Taxpayers would always treat an adopted child as their own child. An adopted child includes a child lawfully placed with them for legal adoption.
- Support. The child must have not provided more than half of their own support for the year.
- Dependent. The child must be a dependent that a taxpayer claims on their federal tax return.
- Joint return. The child cannot file a joint return for the year unless the only reason they are filing is to claim a refund.
- Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
- Residence. In most cases, the child must have lived with the taxpayer for more than half of 2016.
2. Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate a taxpayer’s credit depending on their filing status and income.
3. Additional Child Tax Credit. If a taxpayer qualifies and gets less than the full Child Tax Credit, they could receive a refund, even if they owe no tax, with the Additional Child Tax Credit.
Because of a new tax-law change, the IRS cannot issue refunds before Feb. 15 for tax returns that claim the Earned Income Tax Credit (EITC) or the ACTC. This applies to the entire refund, even the portion not associated with these credits. The IRS will begin to release EITC/ACTC refunds starting Feb. 15. However, the IRS expects these refunds to be available in bank accounts or debit cards at the earliest, during the week of Feb. 27. This will happen as long as there are no processing issues with the tax return and the taxpayer chose direct deposit.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
Many people find it necessary to take out money early from their IRA or
retirement plan. Doing so, however, can trigger an additional tax on top of
income tax taxpayers may have to pay. Here are a few key points to know about
taking an early distribution:
- Early Withdrawals. An early withdrawal
normally is taking cash out of a retirement plan before the taxpayer is
59½ years old.
- Additional Tax. If a taxpayer took an
early withdrawal from a plan last year, they must report it to the IRS.
They may have to pay income tax on the amount taken out. If it was an
early withdrawal, they may have to pay an additional 10 percent tax.
- Nontaxable Withdrawals. The additional 10
percent tax does not apply to nontaxable withdrawals. These include
withdrawals of contributions that taxpayers paid tax on before they put
them into the plan. A rollover
is a form of nontaxable withdrawal. A rollover occurs when people take
cash or other assets from one plan and put the money in another plan. They
normally have 60 days to complete a rollover to make it tax-free.
- Check Exceptions. There are many exceptions
to the additional 10 percent tax. Some of the rules for retirement plans
are different from the rules for IRAs.
- File Form 5329. If someone took an
early withdrawal last year, they may have to file Form
5329, Additional Taxes on Qualified Plans (Including IRAs) and Other
Tax-Favored Accounts, with their federal tax return.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
