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December 2018

3 Types of Tax Credits You Might Want to Know About 

Last week we talked about some really useful tax deductions you might be able to take advantage for during the upcoming tax season. This week, we´ll be discussing 3 types of tax credits you might also qualify for. As the year is almost over, we want to make sure you are informed and prepared for filing your income tax return next year.

There are many types of tax credits you might be eligible for, which you can find on the IRS website. However, we will be talking about three of them only. First, we’ll talk about the tax credits for people with kids. Then, we’ll go over the different tax credits for investing in education or retirement accounts. Lastly, we’ll talk about a tax credit you can get for making “green” purchases, for both residential energy and electric vehicles.

Child Tax Credit

Thanks to the Child Tax Credit, you might be eligible for up to $2,000 for every kid you have, plus $500 for each non-child dependent, too. Something to take into account is that the amount of credit you qualify for depends on your total income. For the 2018 tax year, the phase-out begins at $200,000, or $400,000 if you file as married filing jointly.

The percentage of this credit can be anywhere between 20% and 35% of your expenses related to child and dependent care. If your family’s adjusted gross income is of $15,000 or less, you qualify for the 35%. This percentage will shrink one percentage point for every extra $2,000 addition to your AGI.

Investment on Education or Retirement Credit

Another quite useful tax credit is the Retirement Saver’s Credit. This credit can be anywhere from 10% to 50% of up to $2,000 in contributions we made to a retirement account. This includes IRAs, 401(k)s, 403 (b)s, and certain retirement plans. The percentage of this credit will depend on your AGI and filing status, yet it’s a credit worth checking if your income is less than $63,000.

Another quite useful tax credit is the American Opportunity Tax Credit, which depends on qualifying education expenses of higher education students. This credit can be of up to $2,500 per student and includes tuition, activity fees, supplies, books, and equipment needed during your first four years of college. If your AGI is higher than $90,000, or $180,000 filing jointly, you might not qualify for this credit. However, parents claiming the student as a dependent might be able to take such credit, still.

Eco-Friendly Purchase Credit

There are two types of tax credits we can take for eco-friendly purchases we made this year. First, we have the Residential Energy Tax Credit, which can give you up to 30% of expenses for energy systems. This includes alternative energy equipment such as solar water heaters and solar panels.

Also, we have the Plug-In Electric-Drive Motor Vehicle Credit, which includes light trucks and passenger vehicles. The credit amount can be anywhere between $2,500 and $7,500 for having bought a plug-in electric vehicle. In order to qualify, the car must be new, as the IRS doesn’t count used or second-hand cars. Also, the vehicle must have four wheels, at least, and come with a rechargeable battery with a capacity of four-kilowatt hours as a minimum.

If you want to have more details about these or any other tax credits you might be eligible for, get in touch with us. We’ll be more than happy to answer all of your questions and give you the guidance you need.

 

 

4 Useful Tax Deductions You Should Take This Year 

The year is almost over, and most of us are starting to prepare for the upcoming tax season. The Internal Revenue Service has not announced yet when will the tax season officially begin, though. Nevertheless, being prepared for when it does can save us a lot of time and effort when filing our income tax return. Having that in mind, we might want to look at the many tax deductions available that could help us get a lower taxable income.

There are many different types of tax deductions available for us. Each of them, of course, comes with their corresponding requirements. However, we are including 4 useful tax deductions that could help most of you reduce your taxable income. Such deductions include student loans, retirement plans, theft loses, and medical expenses.  Here is how you can take advantage of each of them if they apply to you.

Student Loans and Education Expenses

Dealing with student loans, interests, and other education expenses can be quite stressful for many of us. The good thing is that these expenses can qualify as tax deductions we can take advantage of. For the year 2018, you can deduct up to $2,500 in interest on your student loan, as long as you’re not married filing separately.

Your adjusted gross income (AGI) has to be less than $80,000 for taxpayers filing as single, head of household, or qualifying widow. If you’re filing as married filing jointly, the AGI needs to be less than $165,000. Other education expenses include tuition, fees, room and board, books, and other supplies.

Retirement Plans

Preparing for your retirement is one of the smartest inversions one can make. Even when making contributions to retirement plans might be easier said than done for some, it will eventually pay back. These contributions can be tax deductible and might vary depending on the type of retirement plan you have.

A Simplified Employee Pension plan is for those who work as self-employed. On the other hand, an Individual Retirement Account works for employees and self-employed workers, too.

In order for these contributions to qualify as tax-deductible, they must be after-tax dollar contributions. For example, if you earn $200 and pay $45 in federal taxes, a contribution that comes from the remaining $155 can qualify as deductible.

Casualty and Theft Losses

If we decide to go for an itemized deduction instead of the standard one, we can add the costs of casually and theft losses to become tax deductible. This means that if any of our belongings were lost due to theft, vandalism, fires, storms, or can accidents, the expenses of repairing or replacing them are deductible.

In order for these costs to qualify, each loss event has a limit of $100. If we have multiple events, each must attaint to the $100 limit, too. The total of our casualty and theft losses must not include the $100 deduction per event when we calculate it. Also, there will be a reduction of 10% from our AGI before we can get the total amount of deductible expenses.

Medical and Dental Expenses

One of the best and most useful tax deductions we should definitely take advantage of is the one for medical and dental expenses. Keeping track of these expenses might be difficult, especially if we visit our GP and dentist quite often. However, having the patience to go through this definitely comes with some benefits.

In order for your medical bill to qualify as deductible, it must account for 7.5% of your adjusted gross income. Anything below this percentage will not be deductible. This means that if your AGI was of $50,000, your yearly medical bill should be of, at least, $3,750.

If you want to know more about these and other tax deductions, don´t hesitate to contact a professional tax advisor. They will be able to help you through the process and give you the guidance you need in order to maximize your deductions.

Common Tax-Filing Mistakes and How to Avoid Them 

The end of the year is getting closer and closer, which means that we must prepare our tax return in order to file it on time. However, more often than we’d like to admit, we might end up caught in the rush of things. This rush may lead us to make some quite common tax-filing mistakes that we should avoid.

Sometimes, trying to finish our taxes before the year is over can become quite an overwhelming task. As a result, making math mistakes, filing with the wrong status, forgetting about side-jobs, and even mailing unsigned forms could cost more than double checking. These are some of the most common tax-filing mistakes, and we’ll tell you how to avoid them.

Making Math-Mistakes

Believe it or not, making math mistakes when preparing our taxes is quite a common mistake. If you’re the kind of person that rather use pencil and paper, don’t forget to double, even triple check before submitting any of your forms. Even when it sounds unlikely, this is a problem that many taxpayers still face.

The best way to avoid math mistakes, though, is using e-filing software or apps instead. This software will be able to catch on any possible mistake you might have made. Therefore, it will help you submit an accurate tax return. There are many free options available, including the ones by H&R Block and Turbotax.

Filing Under the Wrong Status

Filing under the wrong status one of the most common tax-filing mistakes people continue to make year after year. The IRS recognizes five different status you can file under. These include Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualified Widow/Widower with Dependent Child.

The Head of Household status tends to be the one most claimed in error, according to the IRS. As a result, they offer an Interactive Tax Assistant through their website. Such an assistant can help you figure out which status you should use.

Forgetting to Add Any Side-Jobs

During the last couple of years, more and more Americans are becoming a part of the gig economy. Having a part-time job to help you earn some extra income is more common than we might think. This is, in a part, thanks to apps like Uber or Wag, which allow partners to work whenever they have the time to.

If you have worked for an app of the like or done some work as a contractor or freelancer, don’t forget to add this income to your tax report. Also, remember that you might be able to add some of your expenses as business expenses if they qualify.

Mailing Unsigned Forms

Another one of the most common tax-filing mistakes that people keep committing is mailing forms without the corresponding signature. We can’t stress enough how important it is to double, even triple check that everything is in order before mailing.

If you want to make sure you don’t make any of these really common tax-filing mistakes, we also recommend hiring professional help. This way, not only you will avoid mistakes or errors, but you could also maximize your tax returns.

How to Avoid Falling for A Tax Collection Scam 

This week is the National Tax Security Awareness Week, and during such, efforts are made in order to keep taxpayers informed and prepared to avoid being victims of fraud. As most of us start preparing our year-end paperwork, we need to know how to avoid falling for a tax collection scam. During this season, fraudsters start targeting and attacking unsuspecting taxpayers across the country.

In order to avoid finding ourselves in this kind of situation, there are some aspects we need to consider. First of all, we need to be fully aware of what a tax collection scam really entails. Then we must be ready to identify the different signs that can give a fraudster away. Also, we must know what to do in case we happened to become victims of a tax collection scam.

What Is a Tax Collection Scam?

The term Tax Collection Scam, or Tax Scam, refers to any kind of fraudulent contact that attempts to deceit a person into paying a given amount to a fraudster pretending to be an IRS employee. The most common type of Tax Scams is fraud phone calls. However, during the last couple of years, fraudsters have also sent phishing emails to taxpayers.

In most cases, scammers will tell you that you have a balance of overdue taxes or penalties. They will urge you to make a deposit as soon as possible, too. It is also common to receive threats of arrest, deportation, and loss of business, too.

How Can You Identify a Tax Collection Scam?

There are many signs that can give away a tax scammer quite easily. The very first thing we need to know is that the IRS never contacts taxpayers by phone. If you happened to have an overdue balance with them, the IRS would contact you by letter, first.

Second, the IRS does not request taxpayers to make payments via direct deposits or wire transfers or using a credit card over the phone. They have a secure online portal where taxpayers can make payments in a safe and monitored way. You can find more about their payment options here.

You should remember that scammers will use common names and even give fake IRS badge numbers. Also, they can make the Caller ID display the name of the IRS in order to trick taxpayers. They might also be able to give you the last 4 digits of your Social Security number. Therefore, you must remain alert in case you are being the target of a tax collection scam.

What to Do If Am A Target of a Tax Collection Scam?

Whenever we suspect a fraudster is trying to make us fall for a tax collection scam, we must always remain calm. Even when they might sound aggressive and threatening, we should stay calm and disconnect the call. Never confirm nor provide any of the information they might give or ask from you. Instead of engaging with the scammers, hang up and contact the IRS immediately. They will be able to confirm or deny whether you have an overdue balance with them or not.

They also have a security awareness campaign called “Taxes. Security. Together.” that aims at creating a strong partnership among taxpayers and professionals. They have a list of prevention steps to take in order to avoid falling into any kind of tax collection scam.