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.

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.

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.

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.

Going through a divorce can be a tough, long, and more often than not, complicated process. In the US, more than 40% of marriages end up filing for a divorce at some point. With such a rate, we must wonder what the effects of divorce on taxes really are. Therefore, we’ve come up with this brief summary of several aspects to consider before filing for a divorce.

There are several effects of divorce on taxes that we must be aware of if we are going through the process of ending our marriage. To begin with, we will have to think about the date, as this will impact our filing status. Then, we need to know what filing status we’ll opt for, either as single or head of household. Also, we need to understand the role of alimony, child support, and dependent child credits will play after a divorce.

How Can A Divorce Change Your Taxes?

Whenever we decide to end a marriage, many different aspects of our life change, sometimes drastically. The same happens with our tax situation, and we need to prepare for all the different adjustments we’ll have to face. To begin with, the date on which we decide to complete our marriage won’t really make a difference. This is because the IRS considers you unmarried during the complete year even if your divorce process ended by Dec. 31st. However, you must consider the total income you’ll file during the year of your divorce in order to settle on a completion date beforehand.

Filing Status After A Divorce

One of the most relevant effects of divorce on taxes is that it can change the status we’ll use when filing our income report. As we mentioned before, if our divorce was final by Dec. 31st, the IRS will still consider us unmarried during the entire year. If we haven’t been able to finalize our divorce by the end of the tax year, we can decide to file as married filing jointly or separately. However, once our divorce is final, we must file as either single or head of household. Such status will bring us many benefits, including a higher standard deduction, a lower tax rate, and even eligibility for some other tax credits.

Alimony and Child Support

After our divorce has been processed, we still need to take care of taxes on alimony and child support payments. In the case of alimony, the ex-spouse who pays for it will be able to take a tax deduction for such payments. However, the IRS will only consider alimony payments that we make in cash, and that a divorce agreement requires. On the contrary, child support payments do not qualify for a tax deduction for the person paying it. Also, the recipient of child support payments doesn’t have to pay income taxes on such amounts.

Dependent Child Tax Credit

One of the effects of divorce on taxes that most couples tend to contend about is claiming children as dependents. This is because we are able to qualify for several tax exemptions and benefits when we claim for child dependents. One example is the child tax credit that parents or guardians of dependents can get up to $2000 as a tax credit for every child. In order to be eligible for such credit, the child must be under the age of 17 and lived with you for more than half of the tax year.

With the last month of the year about to begin, looking for ways to save on your taxes sounds like a good idea. There are many different ways through which we can make sure we lower our tax return payment for next April. Here we have three amazing year-end tax tips to save money this year that are quite simple and effective.

Whether you decide to make a last-minute donation to your favorite charity or giving a tax-free gift to a family member, these options are really convenient. Besides, you’ll be helping those who need it the most. Also, you will definitely make the month of someone if you decide to go for the tax-free gift. Now, if none of these options work, you might be able to talk to your employer and have them defer your bonuses until January, in case you earned any.

Donate to Charity

One of the most effective and selfless year-end tax tips that will help you save some money is to make a donation to charity. Before making a donation, you must be aware that not all organizations count as charitable. So, make sure you donate to a religious organization, a war veteran’s organization, volunteer firefighters, or any other organization that counts as charity. Keep in mind that our donation should meet a certain minimum amount in order for it to result in a charitable contribution deduction.

Make A Tax-Free Gift to A Family Member

Another great way to save money on your income tax return is by giving a tax-free gift for a family member. A gift qualifies as any transfer of money or money’s worth that is not received in return. Unlike it happens with charitable deductions, family gifts have a yearly limit amount that we mustn’t exceed. For the year of 2018, the limit amount per family member goes to $15,000 as an individual or $30,000 as a married couple. If our gifts qualify, we wouldn’t have to report it to the IRS as income, but we need to file the corresponding form to make it count.

Defer Your Performance Bonuses

If you earned a performance bonus this year, talk to your employer and see if they can defer such rewards. Receiving it in January 2019 instead of December 2018 might help you save some money on your tax return. This way, you will be able to report a lower income while still receiving your bonus next year. Keep in mind that you will still to report this as your income, but it wouldn’t be until your 2019 income tax return.

One of the most important aspects small business owners must pay attention to is payroll. Not only ensuring their employees their payments are always on time but keeping track of payroll taxes, too. Depending on the size of our company, managing payrolls can become quite a pain in the back if not handled properly. Therefore, we have gathered four essential payroll tips for small businesses to avoid suffering from such inconveniences.

As every business needs to receive some guidance every once in a while, our payroll tips for small businesses touch some important aspects to consider. From getting professional assistance to budgeting including taxes, depositing taxes on time, and keeping up with payroll tax updates, we’ll offer the insight your company might be needing.

Don’t Hesitate to Get Professional Assistance

One of the most valuable and relevant payroll tips for small business is getting professional assistance instead of taking over. It might sound better to take care of payrolls by ourselves when we are just starting a company. Nevertheless, few things require as detailed and accurate handling as payroll does. Not only would our employees be affected by our mistakes, but our business would too. So, in order to avoid possible legal action against us or penalties from the authorities, we recommend hiring professional assistance.

Set Your Payroll Budget Including Taxes

Another essential tip to keep in mind is setting our payroll budget apart. Also, making sure we are including the corresponding taxes is a must. We want to make sure that our payroll is always complete and always on time, but more importantly, always compliant. Since payroll taxes might vary depending on your state, including those rates on your budget is strongly recommended.

Make Sure You Deposit Federal and State Taxes On Time

Speaking of taxes, one of the worst mistakes a company can make is failing to deposit the corresponding payroll taxes. In order to avoid being subject to penalties and fees, make such deposits at the same time we deposit payroll checks. If we already budget payroll including taxes, depositing that part of the budget can also help us avoid using it to cover other expenses.

Stay Informed on Payroll Tax Updates

Laws and regulations that supervise payroll taxes, just as other regulations, are constantly under revision and changes might happen unexpectedly. This is why we need to make sure we stay as updated as possible on this matter. When we don’t have the time nor the means to stay on top of tax updates, having professional guidance comes in. When we hire the services of a professional tax broker, we can make sure we’ll remain informed and compliant. Besides, the more we know, the easier it gets to develop smart tax planning strategies.

Filing our income tax return is an essential part of being a citizen of the United States. The Internal Revenue Service (IRS) requires every individual that generates income in the US to report such income by the month of April. In order to file such a report, we need to obtain a tax identification number issued by the IRS. If we can’t qualify for a Social Security Number, we must apply for the Individual Taxpayer Identification Number. That’s why we need to make sure we fully understand how to get an ITIN number issued by the IRS.

Before starting the process, however, we need to know what exactly an ITIN number is. We should also be aware of the reasons why we might or might not need a Tax ID number. Then, we will be able to explore the different options available on how to get an ITIN number.  If we are operating as a business, though, we need to apply for the EIN number instead.

What Is an ITIN Number?

An ITIN number, or Individual Taxpayer Identification Number, is a nine-digit number that the Internal Revenue Service issues for those individuals who do not qualify for a Social Security Number. The IRS issues this number to enable individuals to file their income tax return every year. We must remember that we can obtain our ITIN number regardless of our immigration status. Thus, the IRS will not share taxpayer information with immigration agents under any circumstance. However, obtaining an ITIN number does not automatically gives us the authorization to work in the US.

Why do You Need an ITIN Number?

Any person that is receiving an income that generates in the US needs to file their income tax return. Those individuals who do not qualify for a Social Security Number need to apply for an Individual Taxpayer Identification Number. The IRS issues ITIN numbers in order to enable individuals to comply with the US tax laws and requirements.

People in a wide range of circumstances are eligible to apply for an ITIN number. For example, resident and non-resident aliens filing a US tax return are both eligible for an ITIN number. Also, a dependent or spouse of a US citizen or resident alien, as well as a dependent or spouse of a non-resident alien can apply for this tax ID number.

How Can You Get an ITIN Number?

There are different ways for us to apply for an ITIN number if we need to. The first thing we need to know on how to get an ITIN number, however, is the type of form we need to file. As the IRS website states, we need to file Form W-7, Application for Individual Taxpayer Identification Number, including a couple of documents. Such documents must be original or certified copies that prove our identity and foreign status.

In order to apply for our ITIN number, we have the option of mailing our W-7 with our tax return. We also need to include a proof of identity and foreign status documents to the IRS offices. We can also apply through a Certifying Acceptance Agent or making an appointment at an IRS Taxpayer Assistance Center. After we submit our application, it takes around seven weeks in order for us to receive a letter with our ITIN number.

We can always contact the IRS directly in case we have any questions or doubts regarding the process or status of the application.

Being able to properly manage the finances of a business is one of the biggest challenges that small business owners face. A key element of efficient financing is developing adequate tax strategies that will ensure compliance and savings. This is why we’ve gathered four useful tax planning tips for small businesses that should help you to stay compliant while facilitating deductions.

Such tips include creating a tax planning calendar, keeping track of all your expenses, and conserving relevant documents. Also, we shouldn’t forget about hiring professional help to handle our company’s taxes. Here are four useful tax planning tips for small businesses.

Create a Tax Planning Calendar

One of the most practical tax planning tips for small businesses is creating a tax planning calendar. This will help us to keep track of important dates and avoid missing headlines. The Internal Revenue Service has an online calendar available for businesses and self-employed that can be of great help. Having a tax calendar is a great way to ensure compliance and submit any relevant form on time.

Keep Track of All Your Business Expenses

Another essential aspect of successful financial management for small businesses is keeping track of all our business expenses. This is also a great tip for efficient and practical tax planning strategies. When we have an accurate and detailed record of every expense that we generate throughout the year, filing our tax return will become an easier task. There are several apps available, specifically designed to help business owners to record and document their expenses.

Make Sure You Conserve Relevant Documents

When we file our business income tax return, we must keep in mind that there are several expenses which can be deductible. Besides keeping track of expenses like payrolls, equipment repairs, or business trips, there are other services we can include. One example would be our business insurance policies.

Even when the expenses might be on the record, we must have a copy of our policies to prove such payments. If we are renting an office or using part of our house as one, showing leases and property documents, utility bills, and other documents will help.

Hire a Professional Tax Consultant

Lastly, one of the most overlooked tax planning tips for small businesses is hiring the services of a professional tax consultant. Having the assistance of an expert available is the best way to ensure efficient tax planning. We must keep in mind that professional tax consultants must be knowledgeable when it comes to IRS compliance. Besides, having a tax advisor available will help us come up with the best tax planning strategies. This, in turn, will result in significant savings for our businesses and companies.

One of the most important steps of starting a business is ensuring compliance with the Internal Revenue Service’s (IRS) office. Such compliance requires you to obtain your Employer Identification Number (EIN), or Business Tax ID. This number is unique to your company just like your Social Security Number is to you. The IRS will need this number in order to identify your company and keep track of your tax reports and requests.

Despite popular belief, obtaining our Employer Identification Number is a simple and efficient process. But before we submit our request, first we need to understand what exactly this number is and why we need it. Then, we’ll go over the steps to submit our EIN request.

What is the Employer Identification Number?

The EIN is a unique nine-digit number that the IRS provides to companies and corporations with operations in the United States. The IRS assigns this number to businesses in order for them to identify the company and keep track of tax forms and documents. It is similar to the Social Security Number (SSN) or the Individual Taxpayer Identification Number (ITIN) for individuals.

Besides businesses, the IRS can issue an EIN to employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts, estates, government agencies, and any other business entity.

Why Do I Need an Employer Identification Number?

There are many reasons why our business might need to request an Employer Identification Number beside taxes. Several banks, credit unions, and other financial institutions will ask for the EIN before opening a business account. Getting a business loan, a line of credit or another type of financing might require having an EIN, too.

Also, when we work as self-employed entities or independent contractors, an EIN might work as a valid ID for our clients. This way, we keep our personal SSN safe, and we even look more professional than without.

How Can I Get My Business Tax ID?

Requesting and obtaining our Employer Identification Number is not a complex process, as one may think. The IRS has four different channels through which we can apply for the EIN. Before you begin the process, we recommend this article on how to apply for your business tax ID. Then, you can decide whether to apply online, over the phone, by fax, or by mail.

When you apply online, you will receive your EIN immediately after your information has been validated. In order for you to be able to apply online, you must have a valid U.S. ID number, and your business must be located in the U.S. or territories.

To apply over the phone, you must call the Business and Specialty Tax line between 7:00 am and 10:00 pm, Monday through Friday. Once they have received and validated your information, you will receive your EIN by the end of the call.

To apply by fax, you must complete and send Form SS-4 from your state fax number. This way, you can receive your EIN within the following four business days. When we apply by mail, we must send the same form to the corresponding IRS office. Our EIN is delivered within four weeks.