Thinking About Adoption This Year? Be Sure To Get Your Tax Credits!

http://dpss.co.riverside.ca.us/childrens-services-division/adoption-information/foster-adoptive-parent
http://dpss.co.riverside.ca.us/childrens-services-division/adoption-information/foster-adoptive-parent

Adoption is a great option for people who want to have children. However, the process to adopt a child can be extremely expensive which often deters people from taking on the process. If you want to adopt a child from a foreign country, the cost can be even higher. Luckily, there are tax credits you can take for expenses paid for certain adoption expenses!

The whole process of taking adoption credits can seem pretty tricky so I’ll try to break it down into simple steps. When you file a tax return in a given year, you file Form 8839 to claim the adoption credit. Taking the credit varies if your adoption was domestic or foreign. The adoption credit limit for 2015 is $13,400. In order to receive the credit on your tax return, you must have documented qualified adoption expenses for an eligible child. An eligible child is person under the age of 18 or is not physically or mentally capable of taking care of himself. Qualified adoption expenses include any court fees, adoption fees, attorney fees, travel expenses, etc. that are related to the adoption of the child. You cannot deduct expenses incurred for adopting the child of your spouse or for surrogate parenting. Additionally, you cannot deduct expenses for an adoption that were reimbursed by your employer. Now, once you have your list of expenses for your adoption, when do you can take the credit for them?

When you incur expenses for a domestic adoption during the year, and the adoption does not become final during that year, you may be able to receive a credit for those expenses in the following tax year. If the adoption becomes final during the year, you can receive a credit for those expenses in the current year tax return. Odd, right? Here’s an example to simplify it a little. If you spent $5,000 in 2013 for an adoption and it does not become final, you can receive a credit for those expenses on you 2014 tax return. In 2014, you spend $3,000 on the same adoption, and the adoption becomes final that year. You may receive a credit for those expenses on your $2014 tax return. Therefore, your total qualified expenses for your 2014 tax return would be $8,000.

However, taking credit for adoption of foreign children are slightly different. If you incur expenses for a foreign adoption, you cannot deduct those expenses until the year the adoption is final. For instance, if you incur $2,000 in 2012, $3,000 in 2013, and $4,000 in 2014 and the adoption becomes final in 2014, you may receive a credit for all $9,000 of expenses on your 2014 tax return.

Tax Tip: It is extremely important to keep detailed records and receipts of all your adoption expenses since your adoption may span several years. I would recommend creating an excel spreadsheet to keep a detailed record of expenses. You should still keep a file of all receipts for backup.

The credit you can take is subject to AGI limits and phaseouts. For your 2015 tax return, if you make less than $201,010, you can receive a credit for all of your qualified adoption expenses up to the $13,400 limit. Between $201,010 and $241,010 your credit phases out. If you make above $241,010 you will not receive the credit. There is also another limit on the amount of credit you can take for a certain year. If you have qualified adoption expenses for the adoption of the same child of multiple years, the credit you can take is reduced by credit amounts taken in previous years. See the example below for clarification.

Example: Let’s say you took a $4,000 adoption credit on your 2014 tax return. During 2014 you spent $10,000 on qualified adoption expenses which you may receive a credit for on your 2015 tax return. On your 2015 tax return, you take the credit limit of $13,400 and subtract $4,000, the adoption credit taken in the prior year. This comes to $9,400. On your 2015 tax return, AGI limitations permitting, you can take the lesser of the $9,400 or qualified expenses ($10,000 in this case) as your credit. If you took adoption credits for multiple prior years, the same system applies and you would add all of those credits together and subtract them from the current year tax return adoption credit limitation.

If you adopt multiple children, you may be able to take the full credit for each child ($26,800 for two children in 2015). Additionally if you file your tax return as married filing separately in the first year which the credit becomes available, you cannot receive a credit for those expenses. For example, if you incur expenses in 2012 to be credited on your 2013 tax return, but you filed a married filing separate tax return for 2013, you cannot take the credit unless you file an amended return and change your filing status. You can carry forward any unused credit for five years.

https://lastmother.wordpress.com/2013/10/06/can-we-talk-about-adoption-language/
https://lastmother.wordpress.com/2013/10/06/can-we-talk-about-adoption-language/

Special Needs Child: If you adopt a child that is determined to be special needs, you can receive the maximum credit the year the adoption is final even if you did not pay enough qualified adoption expenses. Special needs are not the same as you would normally think. For a child to be special needs, they must have been a U.S. citizen when the adoption process started, they cannot or should not be returned their parents home, and the child would likely not be adoptable unless assistance is given to the adoptive family.

If adopting a child is the route you are taking, be sure to take into account this credit! If you think you missed an opportunity to take this credit in previous years, you may be able to file an amended return to claim the credit, statute permitting.

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Don’t Fall For IRS Impersonator Scams . . . Protect Your Identity This Year

Identity theft has become a massive problem for the federal government during the past few years. This affects your taxes when a criminal files a tax return using your social security number in order to claim a fraudulent tax refund. It should be noted that not every case of identity theft is a tax issue. If someone steals your credit card information, but doesn’t have access to your social security number, then that case would probably not become a tax issue at that time. However, you should take steps to ensure that no other information including your SSN does not become compromised. People can get your information thousands of different ways, but there are some things you can do to avoid identity theft.

http://ec.europa.eu/taxation_customs/taxation/tax_fraud_evasion/index_en.htm
http://ec.europa.eu/taxation_customs/taxation/tax_fraud_evasion/index_en.htm

If you didn’t know already, the IRS will NEVER contact you via phone or email. I repeat, NEVER. I don’t care if they sound like the most believable person ever. Hang up the phone and ignore them. If the IRS really needs to get a hold of you that badly, they will send you a notice. If someone contacts you via either of those mediums pretending to be an IRS employee, DO NOT give them any of your information. You should immediately send any suspected fraudulent emails to phishing@irs.gov. You should also report any scamming phone calls to the IRS at 1-800-366-4484 or you can report a scam online at the IRS Impersonation Scam Reporting.

One obvious red flag that your identity may have been stolen is if you file your tax return and you get a notice saying a return has already been filed for that social security number. If this occurs, you need to report this to the Federal Trade Commission. You should also contact one of the three large credit unions (Equifax, Experian, or TransUnion) to notify them of the fraud. Next you should fill out Form 14039 and return it to the IRS. You should also respond promptly to any notices you may receive from the IRS regarding the fraud. The longer you leave it alone, the more out of hand your situation will become. Lastly, you should always continue to file your tax returns. If you are a victim of fraud, they may require you to paper file your return. Event though this can be a pain, you still need to file it. Remember that interest and penalties can accrue on unpaid tax. While you may be able to get the penalties removed due to the fraud, the IRS does not normally waive interest accrued.

http://www.forbes.com/pictures/mjd45kmig/10-ways-to-become-a-victim-of-tax-identity-theft/
http://www.forbes.com/pictures/mjd45kmig/10-ways-to-become-a-victim-of-tax-identity-theft/

You can also get an Identity Protection PIN number to file with your tax return. This number helps ensure that your social security number will not be stolen or misused. A CP01F notice from the IRS invites you to get an IP PIN number because you could possibly be a victim of fraud. You are not required to get an IP PIN, but if you do, you cannot opt out in future years. The IRS will send you a CP01A notice with a new IP PIN number each year in December. If you have an IP PIN number you will file your return like you normally do, but you will simply include this number on your tax return. If you are required to have an IP PIN number because you previously opted to have one, your return will be rejected if you do not include this number on your tax return.

These are just a few steps and contacts to help you if you are ever caught in a fraud debacle. I won’t lie to you though. Dealing with the IRS when your social security number has been stolen is not a fun or easy task. It will be difficult, but if you nip it in the bud and take action as soon as possible, the process will be much less time-consuming and stressful. Have you ever had a problem with tax fraud? If so leave your comments below with any situations that could add additional information to this discussion!

4 Tips For Making Next Year’s Tax Filing Less Stressful

http://www.rebootillinois.com/2014/04/04/editors-picks/caitlinwilson/tax-tips/4332/
http://www.rebootillinois.com/2014/04/04/editors-picks/caitlinwilson/tax-tips/4332/

I know what you’re thinking. “Another post on The Tax Bleep? How could that be? It is after April 15th, and I don’t need to think about taxes for another year!” I get it. No one wants to think about their taxes more than the most minimal amount of time necessary. However, there are a few things you can do throughout the year to make your taxes less stressful and cumbersome when the that time of year rolls around.

1. If you switch jobs and make significantly more or less money than you were making during the previous portion of the year, be sure to take this into account when calculating your withholding. You can use the IRS calculator as one option. Another option is to contact your CPA and ask them what the tax implications of your job switch will be. Lastly, you could input your estimated earnings into the 1040 and calculate your tax manually based on tax tables.

2. If you have a big life event, be sure to adjust your withholding for this change. For instance, if you have a baby, you will be able to deduct medical expenses associated with having the baby. You will also have another exemption on your tax return which is an extra $4,000 for 2015 that you get to deduct from your income. Another life event that may affect your taxes is if you get married! Getting married will usually double the amount of money you make, but will also change your filing status as well as your exemptions. You may also need to adjust your withholding to take this into account.

3. Many people invest in various things. A common investment is in stock. It is extremely important to keep your basis information for any stock purchased. Basis is the amount you originally paid for the stock. When you sell the stock, it is important to have your original basis because the basis reduces the amount of the sales price on which you are taxed. For instance, if you sell stock for $500 in 2015, but you paid $400 for the stock in 2012. This means you will only be taxed on $100 instead of the full $500 sales price. If you purchased stock a long time ago and your broker does not have record of the basis, be sure to take the time to find it through out the year so your tax preparation process can be painless when the time comes. If you don’t have basis when you send your information to your CPA, then they will inevitably call you looking for that number, and your tax return won’t get finished until you have found it or give up looking.

4. If you plan on switching CPAs for the upcoming tax year, it would be very helpful for your new CPA to have your tax returns for the year or two prior. If you can get these documents together, and give them to your CPA, they can be sure to take into account any carryover losses or other information that may be necessary in preparing future tax returns. It is much more efficient to give these to your new CPA so they don’t have to ask and wait for your response.

http://blog.taxbrain.com/federal-income-taxes/tax-preparation-checklist/
http://blog.taxbrain.com/federal-income-taxes/tax-preparation-checklist/

These are just a few tips that you can do to prepare for next years tax season to make it less stressful. You can also check out various tax checklists online! It could also hopefully help you avoid a slap in the face when you receive your tax return showing that you owe an unexpectedly large amount of tax. Are there any other things you can think of to help you prepare your taxes throughout the year? Leave your comments below!

Do You Need To File An Extension For Your Tax Return? This Is What To Do!

http://www.grbj.com/blogs/1-banking-finance/post/79393-maneuvering-tax-return-extensions
http://www.grbj.com/blogs/1-banking-finance/post/79393-maneuvering-tax-return-extensions

As you probably know, individual tax returns are due by April 15th, 2015 for the 2014 tax year. However, for various reasons you may not always be able to file your tax return by that due date. You should not miss the date and file when you can because you will incur penalties and interest, even if you will get a refund once you file. If you won’t be able to file your return by April 15, you can file an extension which will extend the due date of your return 6 months to October 15th. There are some exceptions to this which we’ll discuss below.

Form 4868 is the form you file to request an extension. This form needs to be submitted no later than April 15th. When you file this form, you need to know your estimated tax liability for the year based on the information you currently have. Then you enter the amount you have already paid either through withholdings or estimated payments. If there is a balance remaining, this is the amount you should send in with your extension. Filing an extension does not mean you don’t pay your balance by April 15. You can still be charged interest and penalties if you do not pay your estimated balance due by April 15. You do not need to include a reason for why you need the extension. When you submit your tax return (by October 15), do not attach Form 4868 to your return because the IRS will already have record of it as long as you submitted it correctly. The IRS will only contact you if your request for extension is denied. If you don’t hear anything from the IRS after you file your extension, then that is completely normal so don’t worry.

If you are a U.S. citizen that is outside of the country when your tax return is due, you automatically are allowed two extra months to file your return (June 15) without filing an extension. To be considered outside the country, you must live outside of the United States (and Puerto Rico) and you main place of work must be outside of the country, or you are in the military stationed outside of the United States. Even if you are physically present in the U.S. at the time the return is due, you are still considered out of the country if either of those situations apply to you. If you will need more than the extra two months, you can mark a box on Form 4868 to request an additional four months to file.

There are multiple ways to make this payment. You can pay online using Direct Pay, the Electronic Federal Tax Payment System, or a debit or credit card, and you can also pay over the phone. You can also send a check. Be sure you send it to the correct filing address based on where you live to avoid complications.

If you don’t think you’ll be able to file your refund on time, be sure to file that extension! You’ll be happy you did when you don’t get an additional bill for penalties and interest!

Selling Your Main Home? Be Sure To Take Into Account First-Time Homebuyer Credits

http://www.scottbreuerhomes.com/
http://www.scottbreuerhomes.com/

First-time homebuyer credits were credits that reduced the amount of tax you owed on your tax return. You can no longer claim these credits as they could only be taken for the 2008, 2009, and 2010 tax years. However, these credits can still affect those that took the credits when it comes to selling their home in later years. The amount of the credit that could be taken differs between 2008, 2009, and 2010. In certain instances, you are required to repay all or a portion of your homebuyer credit. The circumstances for repayment differ between years. First we’ll discuss the 2008 credit.

If you took the 2008 homebuyer credit, you are obligated to repay that amount. You can think of it as an interest free loan that the government gave you when you purchased your home. You should have received a notice one year after you bought your home explaining the amount of the credit you took and how much you will be required to pay back each year. As you know if you took the 2008 homebuyer credit, the amount you are required to repay either increases your tax due or decreases the amount of your refund. The IRS no longer sends out notices, so in order to look up the amount you need to repay each year, and your remaining repayment balance, you can go to the First Time Homebuyer Credit Account Look-Up. Usually, your repayment is made up of equal payments each year until you’ve repaid the full credit you took. However, if you sell your home within 15 years after the purchase, you are required to pay the remaining balance of your credit in full. This also applies if you no longer use that home as your main home, for instance if you converted to use primarily for business or as a rental property. The rules for repayment change slightly for credits taken for the 2009 and 2010 tax years.

If you took a homebuyer credit in 2009 or 2010, you are not required to repay the credit UNLESS you sell your home within three years of purchase. If you sell your home, or the home is no longer your main home, within three years, you are required to repay the credit in full on your tax return in the year you sold the home. An important form to remember whether you’re repaying the 2008, 2009, or 2010 credit, is Form 5405. You will need to fill out this form and attach it to your tax return in the year you sold your home or no longer use the home as your main home. You only need to fill out this form if you sold the home within the 15 year period for the 2008 credit, or within 3 years for the 2009 and 2010 credits. By filling out this form, you are telling the IRS that you sold your home or it is no longer your main home, and the amount of the credit that you are repaying.

For the 2009 and 2010 credits, the three year period has already passed, to state the obvious. However the 2008 homebuyer credit can still affect many people who decide to sell their home this year or in the few coming years.

Feel free to spread the word below!

Roll Out of Bed and Into Your Office: Business Use of Home Deductions

http://plrarticlemaster.com/home-based-business-610-private-label-rights-articles/
http://plrarticlemaster.com/home-based-business-610-private-label-rights-articles/

If you run your own business or are an employee of a business, you may be able to deduct certain expenses associated with an office you use in your home. This includes mortgage interest, utilities, cleaning services, or a variety of other expenses associated with your home. You may qualify for the home office deduction whether or not you own the house or rent it. The home office must be associated with a trade or business; if you have a home office that you use for hobbies or other not-for-profit endeavors, then you do not qualify for the deduction. This deduction will be a line item on your Schedule C. There are two requirements that your office must meet in order to qualify for a deduction.

The two requirements are: the part of your home used as an office must be used exclusively for that business, and it must be used regularly as part of your business. Those are the two most fundamental words to remember when deciding whether or not you can take this deduction. Is it regularly used and exclusively used for business purposes. There are two exceptions to the exclusivity rule. One is if you run a daycare out of your home, you can deduct the portion of your home used for the day care, even if you use it for personal reasons as well. You must be licensed daycare or exempt from needing a license to qualify. The other exception is the storage of inventory or product samples. If you store either of these items in your house, you may be exempt from the exclusivity rule.  To qualify, you must be able to answer “yes” to all five of these questions: “You sell products at wholesale or retail as your trade or business, you keep the inventory or product samples in your home for use in your trade or business, your home is the only fixed location of your trade or business, you use the storage space on a regular basis, the space you use is a separately identifiable space suitable for storage.” (IRS Website)

If you do not run your own business, but are an employee for another business and have a home office, you may still be able to get a deduction. The exclusive and regular requirements still apply, but there are two additional rules in order to qualify. First, the home office must be for the convenience of your employer. If you have a home office because you felt you needed it, and your employer is not aware, then you do not qualify for a home office deduction. Second, you cannot rent out a portion of your home to your employer and then use that portion to perform employee services for that business.

Click here to see a helpful map by the IRS to determine whether or not your home office qualifies.

After you have decided if your home office qualifies for deductions, there are two methods you can choose for taking a deduction: actual expense method or simplified method.  The simplified method was first introduced for the 2013 tax year. This is a method you would want to use if you do not keep good records of expenses associated with your home, or if you simply do not want to keep those records. First, you determine your gross income and all your business expenses not associated with your home office for the year. You subtract the expenses from the income and if this number is $0 or less, you cannot take a home office deduction. If it is greater than $0, you take the square footage of your home office (not to exceed 300 square feet) and you multiply it by $5. You can deduct the smaller of the $5 times the square footage, or your gross income minus expenses. If you used a portion of your home for daycare and it was not exclusively used for daycare purposes, the simplified method will be slightly different. Click here, and follow links to “Instructions for the Daycare Facility Worksheet”.

You can choose the simplified method year by year. You are not stuck using it forever if you choose to use it one year. However, if you use the simplified method in a tax year, you cannot switch methods in the same year (for instance, if you must file an amended return, you cannot switch your method). Additionally, if you choose the simplified method, you cannot deduct actual expenses. You simply get the deduction as it is calculated, and that is it.

http://weknowmemes.com/2014/04/business-pig-meme/
http://weknowmemes.com/2014/04/business-pig-meme/

The other option is the actual expense method. For this method, there are three categories of expenses. The first is direct expenses which are expenses directly related to your business such as painting a the walls of your home office, or repairs only within your home office. These are fully deductible. Indirect expenses are things that partially apply to your home office such as property taxes, utilities, and mortgage interest. These are only partially deductible. Unrelated expenses are things that have nothing to do with your business such as lawn care in front of your house or painting a room in your house that is not your home office. These expenses are not deductible.

First, you’ll need to determine the percentage of business use for your home. You do this by dividing the square footage of your home office by the square footage of your entire home. For example, say your home is 2,000 square feet and your home office is 200 square feet. This means 10% of your home qualifies as business use of home. Then you can take all of your indirect expenses and multiply them by 10%. Once you have this total, you add it to the total amount of direct business expenses to come to your total deduction. When using the actual expense method, you can also depreciate a portion of your home as well which you cannot do using the simplified method.

As you can see, the actual method takes a bit more effort and record keeping to come to the deduction. You will have to evaluate the trade-off in order to see which method works best for your situation. Leave comments and questions below, and spread the word!

 

Schedule C Auto Deductions: Actual Expenses

Since we went over the basics of the income you should record and expenses you can deduct on your Schedule C, now we get to discuss an important and prevalent topic among business owners. You can expense certain costs associated with using your vehicle for business purposes and there are two methods for recording these expenses. The method we will go over now is the Actual Expense method.

The Actual Expense method means that you can deduct the actual expenses you incurred for your vehicle. If you used your vehicle solely for business and never for personal reasons, you can use 100% of expenses such as oil, registration, repairs, etc. on your Schedule C. However, it is often the case that people use their vehicle for personal and business purposes. In this situation, you should keep track of the miles you drove solely for business and the total miles you drove during the year. Then you can calculate the percentage of business use for your car. You would then multiply this percentage by those oil, registration, and other expenses to get the amount that you are allowed to expense.

You can also deduct depreciation expense on your Schedule C using a variety of methods. They consist of the following:

http://memegenerator.net/instance/52651276
http://memegenerator.net/instance/52651276

Section 179 deduction: When you place a vehicle in service, you can deduct a large portion of the basis of that vehicle as depreciation in the year you place it in service. You also must use the vehicle for at least 50% business use to claim the 179 deduction. You must calculate the basis of your vehicle which is usually the purchase price for most people. (If you need help calculating your basis, leave a comment below, and I can help you out!) If you have a sport or utility vehicle, your basis is limited to $25,000. This means that $90,000 sports car you just bought can’t give you as big of a deduction as you think. Additionally, if you use your vehicle for a percentage of the time for business use, say 80%, then you must multiply your basis by 80% to figure the amount of basis you can actually use for your business depreciation deduction.

Once you’ve figured your basis, then you can determine your deduction. If your vehicle is qualified property and you are taking the Special Deprecation Allowance (see below), then your limit for a depreciation deduction during 2014 is $11,160. If you don’t plan on taking the Special Depreciation Allowance, then your deduction limit drops to $3,160. Here is an example from the IRS website to simplify things:

“On September 4, 2014, Jack bought a used car for $10,000 and placed it in service. He used it 80% for his business, and he chooses to take a section 179 deduction for the car. The car is not qualified property for purposes of the special depreciation allowance.

Before applying the limit, Jack figures his maximum section 179 deduction to be $8,000. This is the cost of his qualifying property (up to the maximum $500,000 amount) multiplied by his business use ($10,000 × 80%).

Jack then figures that his section 179 deduction for 2014 is limited to $2,528 (80% of $3,160). He then figures his unadjusted basis of $5,472 (($10,000 × 80%) − $2,528) for determining his depreciation deduction. Jack has reached his maximum depreciation deduction for 2014. For 2015, Jack will use his unadjusted basis of $5,472 to figure his depreciation deduction.”

http://memegenerator.net/instance/56174186
http://memegenerator.net/instance/56174186

Special Depreciation Allowance: The Special Depreciation Allowance means that you can deduct an additional 50% of the vehicle’s depreciable basis. The first thing to determine is whether or not your vehicle is qualified property for the purposes of this allowance. To be qualified property, it must meet the following three criteria: be purchased on or after January 1, 2008, it must be used at least 50% for business purposes, and it must have been placed in service before January 1, 2008. You would take this allowance after claiming any Section 179 Expense, but before taking any depreciation deduction (see below). You can elect not to use this allowance by attaching a statement to your tax return stating the type of property and the fact that you are electing not to take it. However, if you do not elect out of the allowance, you still must decrease the basis of your vehicle by the amount of the deduction that you would have gotten, even if you did not use the allowance.

Depreciation Deduction: Lastly, after you’ve taken into account your Section 179 Deduction and your Special Depreciation Allowance, you can calculate your remaining depreciation expense. Remember that if you take Section 179 and Special Depreciation Allowance, your depreciation for that year is limited to $11, 160 or $3,160 if you choose not to take the Special Depreciation Allowance. There are a few options you can use to calculate your annual depreciation deduction. While you may only be able to take the other two deductions in the year the vehicle was placed in service, you can still get a depreciation deduction every year until the basis of the vehicle has been fully depreciated. Most people will use MACRS depreciation which stands for Modified Accelerated Cost Recovery System. Under this system, cars are given a useful life of 5 years. MACRS depreciation offers a variety of different ways in itself to depreciate your vehicle so click here to check out the IRS website and go more in-depth to makers. Generally, you will get larger deductions in the earlier years of your vehicles life using MACRS depreciation.

You cannot use MACRS if you were first using Standard Mileage Method, which we’ll discuss later, instead of Actual Expense Method. In this case, you would be required to use straight line depreciation which means you get an equal amount of depreciation expense over the 5 years of the vehicles useful life. Straight line is a much simpler depreciation concept, but is not as beneficial in the earlier years as MACRS is.

Depreciation can be a very confusing issue, especially when trying to apply it to your business assets. If you have any questions or comments, please leave them below, and I will do my best to help you out! Stay tuned to The Tax Bleep to learn about the alternative method, Standard Mileage Method, for expensing costs associated with your business vehicle!

The Grand Finale!

Today we are going to finish up . . . drum roll please . . . the Schedule A! There are so many different aspects to the Schedule A, and there will be different deductions among the millions of people who file tax returns, so breaking it down into sections is the easiest way to understand the whole thing. If you missed my two previous posts about Schedule A, check them out to learn how to take medical deductions, and interest, tax, and donation deductions. You don’t want to miss any possible deductions that could save you some extra cash!

Casualty and Theft Losses

Now on to the final stretch. Did you know that you may be able to take a deduction for casualty or theft losses? So what exactly does that mean. Well, this mean that you may deduct losses such as damage or destruction due to fires, floods, earthquakes, car accidents, terrorist attacks, etc. You cannot take a deduction for things such as damage a pet has done, accidentally breaking a glass while doing dishes, or damage due to purposefully setting fire to something or willfully causing an accident. See the full list of “can” and “cannot” deductions here.

Source: http://www.dumpaday.com/random-pictures/funny-pictures/funny-pictures-51-pics-7/
http://www.dumpaday.com/random-pictures/funny-pictures/funny-pictures-51-pics-7/

Once you have figured out what items have been subject to the circumstances above, you need to determine the original cost of the item(s), the fair market value of the property before and after the incident, and the amount of reimbursement you received (insurance claims, etc.). If your property was stolen, the ending fair market value is zero. There are two limitations when taking this deduction. The first limitation is the $100 rule. If you have multiple losses from the same event such as wind and flood damage from the same storm, you combine those losses into one loss and automatically subtract $100. If you have two separate losses such as your car was stolen, and part of your house flooded, you subtract $100 from each of those losses. The other rule is the 10% rule. After you have subtracted the $100, you then subtract 10% of your AGI. The remaining amount is your loss. If the remaining amount is negative, your loss is zero. Here’s an example to make it clearer:

“Example 1:

In June, you discovered that your house had been burglarized. Your loss after insurance reimbursement was $2,000. Your adjusted gross income (AGI) for the year you discovered the theft is $29,500. You first apply the $100 rule and then the 10% rule. Figure your theft loss deduction as follows.

1) Loss after insurance $2,000
2) Subtract $100 100
3) Loss after $100 rule $1,900
4) Subtract 10% × $29,500 AGI 2,950
5) Theft loss deduction –0–

You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950).” (IRS Website)

“Example 2:

In March, you had a car accident that totally destroyed your car. You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Your loss on the car was $1,800. In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Your loss on the basement items after reimbursement was $2,100. Your adjusted gross income for the year that the accident and fire occurred is $25,000. You figure your casualty loss deduction as follows.

Base-
Car ment
1) Loss $1,800 $2,100
2) Subtract $100 per incident 100 100
3) Loss after $100 rule $1,700 $2,000
4) Total loss $3,700
5) Subtract 10% × $25,000 AGI 2,500
6) Casualty loss deduction $1,200

(IRS Website)

Job Expenses and Miscellaneous Deductions

These next deductions are all limited by 2% of your AGI. If you are employed, you may be able to take a deduction for certain job expenses. If you are self-employed, these deductions will be taken on Schedule C, which we will discuss later. Certain job expenses include travel, union dues, continuing education expenses, etc. You cannot be reimbursed for these expenses in order to claim a deduction. You can also claim deductions for a variety of things such as tax preparation fees, safe deposit box fees, investment fees, and many other things. See the full list here to determine if you can take a deduction.

Once you have gathered all these deduction amounts, you multiply your AGI by 2%. If your deductions are less than this amount, your deduction is limited to zero. If your deductions are more, you are able to deduct the difference. For example, if 2% of your AGI is $1,000 and your deductions are $1,500, you will get a deduction of $500.

Hey, hey, hey . . . we’re finished with Schedule A!

Source: http://imgarcade.com/1/deduction/
Source: http://imgarcade.com/1/deduction/

We have finally finished up Schedule A! Remember that not all taxpayers will itemize deductions and you may need to take the standard deduction. However, be sure to take advantage of all your deductions in order to reduce your tax by as much as possible!

Tune into the tax bleep later this week as we switch gears to helping out all those ambitious self-employed businessmen and women out there!

Taxes and Interest and Donations, OH MY!

Last week we went over the medical deductions portion of the Schedule A. If you missed it, check it out here to learn about the basics! Now we’ll dive into three more pieces of Schedule A and see more lions and tigers and bears … Oh wait, I mean “deductions”, you can take!

Taxes, Taxes, Taxes

Since you’re filing a tax return, it seems only fitting that you should be able to deduct taxes you have already paid throughout the year. If you own a home, you will most likely pay property taxes. You should keep track of these payments you make throughout the year, but if you don’t, you can go to your county treasurer’s website and look them up using your address and/or property owner’s name. You are also able to deduct taxes paid on personal property such as vehicles. You cannot deduct your entire car registration, but your registration bill should be broken down so you can tell which portion is taxes or fees.

Source: http://www.quickmeme.com/meme/35mlko
Source: http://www.quickmeme.com/meme/35mlko

You can also deduct state and local general sales taxes or state and local income taxes; you cannot deduct both. Some states, such as Nevada, do not have state income taxes, and therefore, residents of states like Nevada, would opt to take the general sales tax deduction. If you keep receipts for all your purchases throughout the year, you can add up all the sales tax on those and use that as your deduction. Most people do not do that because it is too cumbersome, not many people save receipts all year-long anymore. Therefore, people often use the general sales tax deduction that is calculated automatically. You can use the IRS worksheet on page A-5 of the Schedule A instruction to calculate your deduction or an easier route is to use the IRS sales tax calculator. If you make any large purchases throughout the year such as a car or household appliances, be sure to save those receipts because the sales tax you paid on that item will often be greater than the deduction you’d receive by using the calculated sales tax deduction.

Interest

If you have a home mortgage, you probably pay interest. If you do, you should receive a Form 1098 which reports the total amount of mortgage interest you paid during the year. It may also show the property taxes you paid so you do not have to look them up online. Your 1098 might also show any mortgage insurance premiums paid which are also deductible. If you refinanced your house during the year, be sure to hang on to your precious HUD statement. Your HUD statement will show “adjusted origination charges” paid when you refinanced your house. You can input these origination fees on your tax return and amortize them over the life of the loan; you can continue receiving deductions years after you refinance! Additionally, if you are involved in investing, you can deduct interest on money you borrowed to purchase investments. Be sure to check the IRS website for any special limitations that may apply to you regarding investment interest.

Charitable Contributions

If you donate to charity, you are not only helping others around you, but if you are also adding more deductions to your tax return! In order for your donation to be deductible, the organization must be a qualified exempt organization. If you are not sure, the organization should be able to provide you with that information, or you can use the IRS search list to see if that organization qualifies.

Source: http://www.blogher.com/giving-down-what-does-mean
Source: http://www.blogher.com/giving-down-what-does-mean

You should keep track of all cash and non-cash donations made throughout the year. On your tax return, you should list out which organizations you donated cash to and how much. With regard to non-cash donations, you should keep track of where you donated items to, and the fair market value of those items. If you are not sure of the value of the items you donated, Goodwill offers a good list of the value of donation items. See that list here if you are not sure how much of a deduction you should take. If your non-cash donations are $500 or greater, you will be required to list the organization, a list of items donated, and the fair market value. If your non-cash donations are less than $500, you only need the organization name and the fair market value of the items.

Be sure to continue tuning into The Tax Bleep so we can wrap up the Schedule A together!

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Doctor, Doctor, Give Me the News, I’ve Got a Bad Case of the . . . Schedule A Blues?

Schedule A: where your deductions come together. Schedule A lists all the deductions you are taking on your tax return. Those deductions include things such as out-of-pocket medical expenses, property and state taxes, certain types of interest, donations to charity, and a variety of other things. Today we’re focusing on the medical deductions portion of the Schedule A. Knowing the ins and outs of your medical expenses and how they affect your tax return may be quite different than what you think you already know. Let’s start by going over the basics.

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So… vitamins are a type of medicine right? Wrong. The only expenses that can be used as a medical deduction are payments for prescriptions, doctor and dentist visits, health insurance, and even transportation to and from medical services. You CANNOT deduct expenses that were paid by your insurance company. You can only deduct expenses paid out-of-pocket. The main factor regarding medical deductions is that the expenses must be for a treatment or prevention of an illness or disease, whether it is mental or physical. Vitamins are not a technically a medicine and therefore cannot be deducted. There are also expenses that could be deducted in certain circumstances but not in others. For example, plastic surgery would be deducted if you needed it in order to fix a medical issue such as reconstruction of breasts after a person has had breast cancer. However, breast implants that a person buys purely for appearance reasons would not be deducted because they do not have a real effect on the functioning of the body.

Vroom, Vroom….! Screeeech! You can even drive your way to medical deductions. If you drive frequently for the sole purpose of medical treatment, you can deduct the money you spend on oil, gas, and any tolls you might pay. You cannot include expenses for your car insurance or general repairs. However, sometimes it may be more beneficial to use the standard mileage rate. The standard mileage rate is 23.5 cents for every mile driven for medical reasons. If you keep track of the number of miles you drove, you can multiply those miles by 23.5 cents and come to your deduction. Here’s an example to simplify things:

Rebecca was diagnosed with cancer during 2014. She lives in Chico, California, and must drive to Davis, California every week for different treatments and doctor appointments. This trip is approximately 200 miles round-trip. She estimates that she made that trip around 20 times during the year which would be a total of 4,000 miles. At the standard rate of 23.5 cents per mile, she would receive a deduction of $940. She spent $600 on oil and gas, so in this case, the optimal deduction would be to use the standard mileage rate instead of actual expenses spent on gas and oil.

If you are not certain whether or not a medical expense is deductible, consult your CPA or visit the IRS website to view an extensive list of expenses you can and cannot deduct.

medical20expenses

Now for a bit of a downer… Just because you spend money on eligible medical expenses, does not mean you will get a deduction. You can only deduct medical expenses that are greater than 10% of your AGI. For example, if your AGI is $30,000, you can deduct any medical expenses that are above $3,000. If you spent $3,050 on medical expenses, you will only receive a deduction of $50. Therefore, the more money you make, the more medical expenses you must have in order for even a portion of them to be deducted at all. This is called “phase out”.

My recommendation for you is to keep an Excel spreadsheet recording your medical expenses. Categorizing them into “prescriptions”, “doctors and dentists”, “health insurance”, and various other categories, can make preparing your tax return very easy at the end of the year. Even if you have a CPA, your bill that you receive for your tax return preparation will be lower if he or she does not have to sift through every single medical receipt you have. After all that work, you may not even have enough medical expenses to receive a deduction. Staying organized is a huge help, not just regarding your medical expenses, but all you itemized deductions and income.

Feel free to comment below if you have any questions or feedback! Stay tuned to the Tax Bleep for all of your tax questions!

Image Credit (1), Image Credit (2)