Big Savings on Tax for Newly Married Couples

Big Savings on Tax for Newly Married Couples

by | Feb 28, 2018 | Deduction & Credits, Tax Planning

Big Savings on Tax for

Newly Married Couples

Big Savings on Tax for Newly Married Couples.Of the several advantages of being married to someone, the least expected one comes in the form of tax deductions. Post marriage, if you file your taxes jointly, you can cut down on tax liability by a decent enough margins. You can avoid certain types of penalties, largely dependent on your source of income. If you and your spouse are in different tax brackets, the one earning lower can help in bringing down the overall income and thus reduce the tax liability.

Tax Bracket Changes

A tax bracket essentially provides the highest amount of taxes that you would be liable to pay. As the tax bracket changes with different filing status, the tax rates applicable to you before marriage might change. Post marriage the source of income of both partners is taken into consideration. While it might bump up the bracket for one, it might bring down the tax bracket for the other one.

Enhanced deductions and exemptions

As your status for filing taxes changes from single to married filing jointly, there are several other advantages in the form of deductions and exemptions. Post marriage you and your spouse are eligible for two personal deductions, one each.

Married couples also enjoy the highest standard deductions in the entire tax regime. For an instance, in the year 2017 someone filing as a single taxpayer would have walked away with a $6,350 deduction. For the status married filing jointly the same deductions stood at $12,700.

Each child that you declare as dependent, provisions you for tax deductions and the amount stands at $4,050 per child.

Gifts and Real Estate

If you are not already aware of it, spouses can gift each other any number of gifts either in cash or even property. You can work this in your favor when it comes to property planning. So, the next time you are planning for something in the real estate, do not forget about this clause.

To itemize or to claim standard deduction

Every year one of the toughest decisions that one has to make during the tax season is whether to itemize or opt for standard deductions. But if you own a home and are married, it would add more value if you opted to itemize your deductions. Simply because the interest rate on your mortgage would result in higher deductible amount than what standard deduction would provide you.

W-4

When you file taxes as married filing jointly, you have access to higher exemptions and deductions, than what you would have paid if done separately. Thus, updating your W-4 Form with your employer to reflect these changes is advisable.

Charitable Deductions

We are all aware that there is an upper cap on charitable deductions on a yearly basis. However, married couples enjoy a higher limit when it comes to charitable deductions. This allows for higher deductions under charity which makes way for better tax saving.

Additions to IRA

According to the IRS, you or your spouse may contribute to your IRA funds even if one of you does not work. The benefits that married couples get due to filing jointly are dramatically different from the ones single taxpayers receive. This allows you to save a substantial amount of money as tax and put in money for your retirement at the same time.

If all of the above points were not good enough, you also get to save time while doing your taxes. As both of you must fill one tax return instead of two, you will end up saving time as well.

Details and Understanding for Casualty and Theft Losses

Details and Understanding for Casualty and Theft Losses

by | Feb 13, 2018 | Deduction & Credits, Tax Planning

Casualty and Theft Losses

Casuality and Theft Losses.It is not unknown for people to suffer a loss in the form of theft and casualty for their personal properties. If you are one of them, you can claim the same as itemized deduction for your tax returns. To do so, you need to fill up the Form 4684 to understand how much of yours loses you can report and then mention the same in the Schedule A of the Form 1040.

It is important to note that you can claim only for those losses that are not covered or reimbursed by any insurance company. Also, in order to qualify for the deductions, your loss should amount to more than 10% of your adjusted gross income. You cannot claim a deduction otherwise.

Understanding Casualty and Loses

There are various reasons or aspects that can result in damage or destruction or even loss of property. However, not all of them enable you to deductions under the casualty and loss clause. The following are the only conditions in which casualty comes into the picture.

  • An event occurs swiftly, as opposed to a progressive event
  • Any event that does not occur on a day to day basis
  • An event which is unintentional or something that no one anticipates

Apart from the above points, casualty is also considered if you undergo any of the following.

  • Natural disasters such as earthquake, flood, volcanic eruptions, hurricanes, tornadoes etc.
  • Any form of terrorist attack or vandalism
  • Money that you lose if you the financial institution you deposited your money in, goes bankrupt
  • Any demolition or relocation initiated by the government if the same is deemed unfit for habitat due to any disaster
  • Draught is one of the major reasons behind loss of property, but for you to claim it, you should be involved with any transactions that leads to profit or must have some sort of farming or trading with the property

Though casualty loss covers a lot of ground, there are still a lot of exclusions such as:

  • Setting up a fire willingly or asking someone to do it on your behalf
  • Damage to trees due to any disease or fungus or pests etc.
  • If you break items accidentally
  • If the damages occur due to negligence or not taking proper care, like termites or moth

It is important to note that you should reach out to your insurer immediately to claim for those  loses you underwent, if the property is insured.Inability to do so will be a hindrance in your casualty and theft loses claim. But if the loses are not covered as part of the insurance, then you can claim the same.

Understanding Theft

If the intent of any action is to reduce the property of an individual by removing or taking away money or some portion of the property, it is theft. For the same to qualify as theft it must be done with a criminal intent and must be illegal as per the local laws. The most common forms of theft are as follows:

  • Blackmailing someone
  • Breaking into someone’s house and carrying out a burglary
  • Any form of fraud or denote facts wrongly
  • Any robbery on the property
  • Kidnapping someone and asking for ransom
  • Extorting an individual
  • Misuse of the property or portions of it

If you have been subject to any of the above, you first need to check the adjusted basis of your property before any of these events took place. Post that, you need to figure out what has been the change in your property value due to these actions and deduct the same from the insurance amount;you can claim the remaining amount.

Tax on Cash Donations, Non-cash Donations, Charity Expenses

Tax on Cash Donations, Non-cash Donations, Charity Expenses

by | Feb 9, 2018 | Deduction & Credits, Investment & Income

Tax on Cash Donations,

Non-cash Donations, Charity Expenses

 

Tax On Cash Donations,Non cash Donations, Charity Expenses. A donation in any form can give you immense pleasure and harmony of sharing stuff with others who do not have access to such things. More people are interested in such noble causes than ever before. Apart from helping some people in need, you can help yourself as well. A Donation is one of the known ways of reducing your tax liability. Unfortunately, a lot of people started to misuse the same and in turn forced the government to push for stricter regulations. The following are some important points that you need to consider when it comes to tax on donations or charity.

  • If you have done some non-cash donations to any organization and the same accounts to less than $250, you need to get a receipt from the organization. Think of it as the donations made to the Salvation Army and the receipt that you get in return. You need to keep the receipt with you carefully for your tax returns. But do not file the same in your returns.
  • For any charity that you have done that ranges from $250-$5000, you need to get a comprehensive acknowledgment in written from the organization or charity. IRS has a format that must be followed for the written acknowledgment.
    • It usually includes the description of your donation, not necessarily the value of your donations.
    • If the charity provided any services in return of your donation.
    • If they did provide any services, a description of the same along with a fair value of the services.
    • Date of the donation, which will be helpful during the filing of tax returns.

You also need to produce a written valuation of the donations so that it can be attached with tax records. The evidence is essential for the IRS to decide the deductions that you must receive as part of the donation.

  • In the event that your total non-cash donations are more than $500, you would need to fill up the Form 8283 and make it a part of your tax return. The form is specifically designed for noncash charitable contributions.
  • Should you want to donate items that include furniture or clothing it must be in good condition for you to claim the same in your returns. This can be a bit tricky but getting a valuation and attaching the same can bring down any confusion that persists. For an instance, you might want to donate any relic but their usual condition might not come under good condition criteria. The valuation criteria come into the picture if the donation is more than $500.
  • If you are planning to donate noncash items whose value is more than $5000, the above points hold good. In addition, you would need to furnish an appraisal of the item by someone qualified to do so. However, if you want to wish to donate anything that is traded publicly, then no such appraisals are needed. The appraisal is usually valid on property donation or donation that is beyond a specific value.
  • Tax payers who wish to donate tangibles such as cars, boats, or places have to deal with additional scrutiny. It is important to understand that the tax write-off will only come into the picture once the charity or organization sells such an item. So, the IRS doesn’t really care about any valuations as long as the item stays with the charity.
  • Tax on cash donations largely depends on the tax bracket you qualify for. For example, a $100 donation for someone in 35% bracket would cost them $65 on paper. These values change every year, so it is worth checking the rates before you donate.
Child and Dependent Care Expenses

Child and Dependent Care Expenses

by | Jan 23, 2018 | Deduction & Credits

Child and Dependent Care Expenses



Child and Dependent Care Expenses.Paying for day care expenses slowly and steadily becomes a large chunk of the household income. But there is very little that working parents can do about the same. The IRS understands your pain and that is the reason they let you take credit for such expenses. You can avail up to 35% of the total expenditure on childcare or daycare services, of course, subject to certain conditions.

Details of Expenses

In order to avail the tax credit, you must have a kid or adult who cannot take care of themselves and thus require such services. Also, you need to have a source of income to justify the need for such services.

The whole idea of this tax credit system is that the daycare services let you work.

The same is applicable if you attend school as well. If you are married, your spouse must either be working or attending school or looking for a job. If they stay back home, they would be able to take care of the dependents and thus the credit system does not hold good anymore. If your spouse is disabled and is unable to take care of the dependent, then you can avail the tax credits.

Dependent

To qualify as a dependent kid, your child must be younger 13 years. If he or she is more than 13 years and is unable to take care due to any form of disability, they also qualify as dependents. The rules do not allow you to take a tax credit for a dependent that does not stay with you for more than half of the year in question.

Some parents do not claim dependent care if they are divorced or separated. But they can still go ahead with child care credit.

It is applicable only to custodial parents and not everyone.

Day Care Services

The laws do not allow one of your dependents to be the care taker of another dependent to avail the credits. For an instance, you cannot have one of your elder kids look after your younger one and claim the same. Unless one of your children is not dependent on your anymore or is above 19 years.

It is easier to take help of professional day care services, where you do not have to go through a lot of questions.

Any day camps also qualify for such credits. However, if your spouse has claimed the credits you cannot claim it again.

Tax Benefits

If your daycare charges are up to $3000 for one dependent or $6000 for more than one dependent, you can avail the credits. The above are merely qualifying amounts and a certain percentage of it qualifies for credits.

For an example, if you have two dependent kids and the day care charges are $8000, only the first $6000 will qualify for the calculations.

Your income also plays a large role in the amount that is passed on as childcare or dependent care credits. The status of tax filing also plays a small role in deciding the tax credits. Calculations let you claim only the amount that you have spent or your actual income for that year. For an instance, you could have spent $6000 for day care expenses but have earned $4500 for that year. In such scenario, only $4500 is eligible for the tax credit.

Some employers provide compensation for day care facilities. You must deduct the same from your tax filing. Lastly, depending on your adjusted gross income the tax credit comes usually varies from 20 to 35% of your actual expenditure. There are no upper limits on how much you must earn to avail these benefits.

Working from home? Claim your Home Office Deductions

Working from home? Claim your Home Office Deductions

by | Jan 9, 2018 | Deduction & Credits

Working from home? Claim your Home Office Deductions

Working from home .claim your Home Office Deductions.Some of us are quite lazy to drive/ride to work every day, so we prefer to set up office at home. Well, jokes apart, some of the small business that operates right out of their homes qualify for deductions. But the fear of audit keeps them away from any such declarations. But in all fairness, if it is genuine and you deserve it, there are no reasons as to why you should not aim for it.

The following are some pointers that you should keep in mind before proceeding with claiming home office deductions.

Exclusive Usage

This acts as the first line of defense.

If you want to opt for home office deductions, you must have a space dedicated to the business use.

Though there are no specifications as to the room size or number of rooms, IRS is very particular regarding a dedicated space for work. As long as there is clear demarcation between work and living space it should be fine.

You should not be using the room as a backup room or double up room for other activities. For an instance, if you work in the room for 8 odd hours a day and leave it up for parties or children activities otherwise, you would end up violating IRS norms.

Regular Usage

Regular usage is one of those things, which is a bit difficult to draw a line on, but in general, you should be using the home office on a regular basis.

Thus, using a usually empty room for one or two business related stuff once a month is a big no, as you would fail the IRS test.

Again, the definition and a clear line would change depending on the scenario and it is at IRS’ discretion.

Primary Business Place

Apart from exclusive and regular use, the workplace should either be a place where you have regular interaction with customers and clients or the primary location for business. There are a few individuals who take up part-time business from their home. Even if you work for majorly in another office, the time spent at your home office will help you qualify.

One has to be a bit careful when it comes to the definition of business over here. You might be an investor who deals in trading for your own benefit.

Declaring your home as an office for that purpose will most probably mark you as not eligible.

Though if you have several properties and have rented them out, you may qualify for home office deductions if you use the room exclusively for this purpose. One of the most important things over here to remember is that the office should be used as a principal place for business and not necessarily principal office.

Storage and Day care

If you want to use your house to provide day care facilities for either children or elderly people, you should primarily meet the requirements of your local and state administration. The exclusive usage clause does not apply to daycare centers. Meaning you might you the place for day care activities for the most part and use it for personal usage post that timing.

Some people use their basement as the storage facility for their business.

Using the basement or any other space regularly for such activities would qualify you for home office deductions, but that should be your only business location.

If you qualify for home office deductions under any of the above, it is worth investing your time in getting the qualification. Simply because you will end up saving a decent amount of money by this exercise.

 

Check out details about Mortgage & Housing Deductions