Phils Tax Tips & Updates
REMINDER: Those of you who received the 2008 First Time Homebuyer’s Credit of $7,500 were required to start paying back that interest-free loan on the 2010 tax return. This will mean an extra $500 payment to the IRS. There are 15 payments to make in total. The last payment will made be in tax year 2024. If you disposed of the home or the home ceased to be or your main home in the current tax year, you generally must repay the the entire credit in that current tax return.
AN APP FOR TRACKING YOUR TAX REFUND
The IRS has announced an app for the iPhone and Android called IRS2Go. It allows taxpayers to find out the status of their refunds and other tax information. Information on tax refunds will be available within 72 hours of receiving an acknowledgment from the IRS for an e-filed tax return. It will take longer for paper returns filed by mail.
App users can also receive daily tips and reminders from the IRS by entering their e-mail address.
Click here to see the detailed IRS guidelines to the Expanded Recovery Act Tax Credits
What it generally means is a credit of 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined tax years that the credit was offered. Other restrictions apply.
IRS ONLINE WITHHOLDING CALCULATOR
Make sure you have your (& spouse’s) most recent pay stub & most recent tax return available to help you complete information. This calculator is especially helpful for two-income households to make sure they are getting the right withholdings taken from their pay.
Access IRS Withholding Calculator.
You can deduct up to $250 ($500 if married filing joint and both spouses are educators, but not more than $250 each) increasing to $300 for 2022, of any unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. You must have worked at least 900 hours a school year in a school that provides elementary or secondary education.
TUITION & FEES DEDUCTION
You can deduct up to $4,000 of college tuition and fees.
USAGE OF AUTOMOBILE FOR BUSINESS:
2022/2023 standard mileage rates (in cents) for the use of a car (also vans, pickups or panel trucks) are:
Mileage rates change from July-December
You are exempt from federal income withholdings and you can be claimed as a dependent by your parents IF : your earned income does not exceed the standard deduction + $300 or your unearned income (interest, dividends, etc.) will not exceed $950 and you had no income tax liability in the previous year. If you paid social security & Medicare taxes, this will not be refunded. If you do have federal taxes taken out of your income for p/t, summer jobs, file your taxes to get a refund . If you had no Federal taxes taken out & you made less than the standard deduction with no interest or dividends, there’s no need to file. If you are under 24 years old & a student, your parents can claim you as a dependent no matter how much you earn. But when a student needs to file their tax return, they should not claim themselves – they need to file their return indicating they are a dependent. Otherwise, the parent’s return will lose the deduction & would require filing amended returns in order to get the proper deduction.
CHILD CARE & SUMMER DAY CAMP EXPENSES (child must be under 13 years old):
The cost of child care creates a credit against any tax liability. The credit ranges from 20% – 35% depending on your income. The 35% rate applies if your Adjusted Gross Income (AGI) is under $15,000 & 20% if your AGI is over $43,000. The maximum child care deduction is $3,000 for one child and $6,000 for two or more. This will be multiplied by the rate (20% to 35%) resulting in your tax credit. Under dependent care assistance plan where child care dollars are excluded from income, maximum is $5,000 for one child and $10,000 for two or more children. To get the deduction you must have the provider’s SS# or EIN#. Without this, the exempt money will be taxed. Note: If AGI is less than $15,000 use credit method.
ADVICE TO NEWLYWEDS:
Your marital status on December 31 determines whether you are considered married for that year. If you change your name, let the Social Security Administration know your name change. Use their SS-5 Form . Newlyweds may find that they now have enough deductions to itemize on their taxes. Amounts paid for medical care, mortgage interest, charitable contributions, casualty losses and certain miscellaneous costs can reduce your taxable income, lowering your tax.
SELLING YOUR HOME:
You may exclude up to $250,000 for single or $500,000 for married taxpayers filing jointly from your profit of the sale. Your home must have been owned by you and used as your main residence for a period of at least two out of the last five years prior to its sale. If you DO NOT meet the ownership and use tests, you may be allowed to use a reduced maximum exclusion amount if you sold your home due to health, a change in place of employment or unforeseen circumstances (includes divorce or disaster resulting in a casualty to your home).
Making the January mortgage payment in December (early enough for the bank to get and record the payment) will save you about $500 in Federal income taxes. Example: if your mortgage interest is $2000 a month and you are in the 25% tax bracket, the savings in tax avoidance would be $500. You can use this strategy to help you get more deductions in a tax year where your income has increased and an offset would be more beneficial.CAPITAL LOSSES: Have stocks that are losing money and you have not sold them yet? Why not sell enough to record a $3,000 loss (which is the max. allowed in one year, any amount greater becomes a carry over). In a 25% tax bracket this equals $750 and would reduce your Adjusted Gross Income, which would lower your limitation for Misc. Deductions 2% and Medical 7.5%, giving you a greater Itemized Deduction amount. If you don’t want to sell any stocks because you feel that they will come back to the original prices, you can sell the stock to create your tax loss for the current year and buy the stocks back after 30 days giving you a lower base (purchase price) or you can buy the stock one day (equal amount of shares) before selling the stock. Only you must use an average cost of the total stock in hand.
TRANSPORTATION AND/OR AUTO EXPENSES:
You can claim travel to and from your doctor, hospital, clients, specialist, drug store or for therapy is deductible at 19 cents per mile for travel for medical reasons. Even if the specialist is 300 miles away, that airfare and hotel is deductible and if you had a minor child that required the specialist, the trip for the parent or any person over 21 that is escorting this minor child is deductible.
OTHER THAN CASH CHARITY:
If you have old clothes in good or very good condition, don’t throw them out. Note: Used underwear is disallowed! Bag them and call either the Salvation Army( click here for a location ), St Mary’s Church in Newark, NJ, Goodwill Industries ( click here for a location ) OR Vietnam Vets of American (1-800-775-VETS). Any one of these groups have pick ups and will give you a receipt. You must list and value the items. Items can range from clothing, books, old computer equipment, household items and even an old car (that you couldn’t get rid of). Values could go up to $4999 without a certified appraisal and can be listed on Form 8283. This could amount to a substantial tax avoidance for you. Of course, you must itemize your tax return to get this deduction.
Donations are deductible whether vehicle is running or not, such as cars, boats, snowmobiles, RVs, motorcycles, jet skis, etc. The charity will often pick up your vehicle, sell it at the best price & give you a receipt for the full amount to deduct on your taxes. Here are some charities that participate: The American Heart Association Vehicle Donation, The American Diabetes Association or Kars4Kids to name a few. You may want to find out what percentage of the donated proceeds actually go to the charity cause. (Charitynavigator.org)
ESTIMATED STATE TAX PAYMENTS :
Making the last payment (due Jan 15th) by December will make an additional deduction. You can use this strategy to help you get more deductions in a tax year where your income has increased and an offset would be more beneficial.
PENALTIES FOR FILING OR PAYING TAXES LATE
Filing Late: If you do not file your return by the due date (generally, April 15th), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions). If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your refund.
Paying late: You will have to pay a failure-to-pay penalty of 1/2 of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file your return. Filing an extension DOES NOT change the due date of paying your taxes.
There are many more deductible expenses that the average person is not aware of. That is why 90 million taxpayers have their returns prepared professionally.
Give us the opportunity to help you. We will, in almost 100% of the cases, save you more than enough money to cover the cost and put some dollars in your pocket or reduce the taxes you may owe.