Interactive by joshritchie

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File Jointly or Separately?

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The first tax question confronting any newly married couple is your filing status. You have two choices:

• Married filing separately
• Married filing jointly

There are pros and cons for each. Couples who are married and filing jointly, for instance, may enjoy lower tax rates on their combined income. Married filing jointly also makes each of you responsible for the accuracy of the return: both spouses must sign. Generally speaking, there are more tax benefits to filing jointly, but there may reasons to file separately.

If one spouse is self-employed and the other doesn’t want to be connected to the business, filing separately may be an option. Filing separately might also make sense if one spouse owes income taxes and it would threaten the other spouse’s refund to file jointly.

Potentially Lower Income Taxes

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We noted above that married couples filing jointly qualify for lower combined income tax rates than couples filing separately. This is especially attractive to couples with differing levels of income. But this is not the only way marriage can impact the size of your IRS bill. A number of tax credits may only be claimed by couples who file jointly, including:

• Adoption Expense Credit
• Lifetime Learning Credit

Another consequence to consider is that if you are married and filing separately – and one spouse itemizes their deductions – the other spouse gets a standard deduction of $0. This essentially forces the other spouse to itemize (whether they originally found this to be desirable or not) to avoid losing tax deductions altogether.

No Estate Tax

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One of the most powerful tax benefits available to married couples is the unlimited marital deduction. As SmartMoney explains:

“If your spouse is a U.S. citizen, you can leave any amount to him or her with no federal estate tax hit. If you are a U.S. citizen, your spouse can do the same. This is the so-called unlimited marital deduction privilege. For married couples, the $5 million federal estate tax exemption and the unlimited marital deduction privilege provide significant federal estate tax shelter for those who die in 2011 or 2012.”

Don’t ignore this. A freshly married couple in their mid-20′s might not be thinking about estate planning (it’d be a little weird if they were) but as the years pass, it will increasingly loom large in their future decision making.

Exempt From Gift Taxes

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Married couples also get more bang for their buck when it comes to the gift tax exclusion. Currently, there is an annual federal gift tax exclusion of $13,000 for 2011 (meaning your recipient can “”immediately and without restriction use, possess, or enjoy the gifted property” without tax consequence to you.) As a married couple, you get to combine this exclusion. SmartMoney offers the following potential scenario:

“With two adult children and four grandchildren, for example, you and your spouse could each give them $13,000 each in 2011 for a total of $156,000 (6 x $13,000 x 2). Then, do the same thing in 2012. Over the two years, your taxable estates would be reduced by $312,000 (2 x $156,000) with no adverse federal gift or estate tax effects.”

As your wealth grows, be mindful of ways to use the gift tax exclusion to strategically transfer assets to loved ones (or between each other.)

Child Tax Credit

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No tax benefit is more appealing to child-rearing couples than the Child Tax Credit. This credit, the IRS says, enables couples to reduce their taxable income by as much as $1,000 per every “qualifying child” they have. Six criteria decide whether your child qualifies: age, relationship, support, dependent, citizenship, and residence. The child must be under 17, not have provided “more than half” their own support, must be related to you (by blood, marriage, or adoption), a U.S. citizen, claimed as a dependent on your tax return, and live with you for over half the year.

When trying to decide how to file, don’t worry.  TurboTax can help you figure out whether file married filing jointly or married filing separately.

Dependents

Before you can get any of the tax breaks that you deserve, make sure your child has his or her own social security number. Now, when you file your tax return, you have an additional exemption to claim.

In 2011, an exemption represents a deduction against your income of $3,700 and in 2012 the exemption will increase to $3,800. Not to be confused with tax credits which are a dollar for dollar savings for you, these deductions simply reduce the final tally for your taxable income. In the 15% bracket this will save you $555, and at 25%, $925 in 2011, you get the idea.

If you adopted a child, you are eligible for The Adoption Tax Credit, up to $13,360 for 2011 to offset your out of pocket costs . The credit begins to phase out for couples with a Modified Adjusted Gross Income (MAGI) over $185,210 and is completely eliminated at a MAGI of $225,210 for 2011.

The Child Tax Credit is an additional $1,000 credit you may be eligible for if you have a child under 17. It’s available to couples whose MAGI is under $110,000 or $75,000 for a single parent, and phased out above these levels.

If you pay someone to take care of your child under the age of 13, while you are working or actively seeking work, you may qualify for a Child and Dependent Care Tax credit up to $1,050. Families that earn less than $15,000 can claim a credit for 35% of qualifying expenses up to 3,000 for one child and up to $6,000 for two or more children.  If your earned income is more than $43,000 you are still are allowed 20% of eligible costs.

If you are in the 25% bracket or higher, instead of the credit, it may make sense to use a Dependent Care Account (DCA) if your employer offers it. You may deduct up to $5000 pretax and apply for reimbursement of expenses for your child under the age of 13 (or older child incapable of caring for his or her self.) Important to note, even though the enrollment period is usually once a year, around November, the change in family status (i.e. having the new child) enables a during-the-year change request.

The Flexible Spending Account (FSA) is another opportunity to withhold pretax money. The typical limit offered by most companies is $5,000 per year. Similar to the DCA, this account is used to cover medical expenses, co-pays, prescription medicine, glasses, or other medical procedures not reimbursed by your insurance. While you may have one with or without a child, the hospital bills for a child birth add up, and this is a great way to cut your tax bill a bit further. This account is “use it or lose it,” so plan carefully. If December approaches and you realize there’s extra money, it’s time for new glasses. Non-prescription medicine is no longer eligible, although you can certainly ask your doctor to write one for aspirin, cough medicine, etc, during a regular visit.

By the way, just when you can’t remember what it was like to sleep through the night, your child will be a teenager and sleep till noon every chance he gets.

Tax Questions

Here are some of the most common tax questions from job seekers, parents, baby boomers, and homebuyers this tax season:

1. Job Seekers-With an average unemployment rate of 9.7%, millions of Americans were hunting for a new job in 2011.  If you were one of them, your job search, moving expenses, and home office expenses might be tax deductible.

• Can I deduct the cost of searching for a job? All those resume copies, employment, outplacement agency fees, career seminars, and even business related travel might be deductible if you were looking for a new job.
• Are moving expenses for my new job tax deductible?  Moving expenses related to a new job may be tax deductible if you meet the distance and time test.
• Are unemployment benefits taxable?  Many people are asking if the first $2,400 of unemployment income is tax free, however that tax benefit expired December 31, 2010.
• I started my own business, can I deduct my home office expenses?  Many entrepreneurs are hesitant to write off the business use of their home, however there are many deductions they can take advantage of and shouldn’t miss out on.

2.  Parents- Being parents can be hard work and costly.  Whether you have new additions to the family, college-bound students or kids in day care, at tax time you might be getting a little extra money back in your pocket.

• Who qualifies as a dependent?  This is one of our most frequently asked questions today, due to the changing dynamics of relationships.  Many taxpayers are surprised to find out who qualifies as a dependent.
• What are qualified education expenses?  The U.S. government provides incentives, in the form of education tax credits and deductions, to help decrease the economic impact of pursuing a college education.  If you paid eligible education expenses for you, your spouse, or your dependent, you may qualify for one of these tax benefits.
• Can I deduct the costs of daycare for my children?  If you paid for child care, dependent care, or even summer camp so you could work, you may be eligible to deduct 20 to 35 percent of qualifying expenses up to $3,000 for one qualifying individual and up to $6,000 for two our more qualifying individual.
• How do I claim the adoption credit?  If you chose to adopt, you may be eligible to take a Qualified Adoption Tax Credit up to $13,360 for qualified expenses  associated with the adoption.

3.  Baby Boomers – There are 78 million boomers nearing or already enjoying the benefits of retirement, and with these life changes comes common tax questions:

• Is my social security income taxable? Social Security income is not always taxable, however all of your income sources need to be taken into consideration when figuring out how much of your social security income will be taxed.
• How do the new reporting requirements for cost basis impact me?  Effective 2011 brokers are now required to include the cost basis of investments sold if they were purchased in 2011 and after.  Since this is a new law, you will still be responsible for the cost basis on previous equity purchases that were sold.
• What are the tax implications of taking money out of a retirement account to pay bills/debt?  Taking money out of your retirement account to pay off debt may seem like a good idea at the time, but withdrawing from your retirement can be costly.  If you haven’t reached the age of 59-1/2, you not only will pay taxes based on your tax bracket, but also an additional 10% tax.

4. Homebuyers/Homeowners -Whether you were were one of the 302,000 new homeowners in 2011 or long-time homeowners, there may be tax deductions available to help offset some of the financial costs of being a property owner.

• What can I deduct in a mortgage refinance? If you have taken advantage of lower interest rates and refinanced your home, you may be able to take a tax deduction for the points paid(loan origination fees) to refinance your home loan.
• What qualified for home energy tax credits in 2011? The Residential Energy Tax Credit was reduced in 2011, however you still may be able to deduct up to $500 for insulation, roofs, and doors.
• How do I repay the 2008 First-Time Homebuyer Tax Credit?  If you were lucky enough to receive First-Time Homebuyer Tax Credit in 2008, you were supposed to start repaying the tax credit in 2010 over 15 years through your tax return.

Still have more questions?  Don’t worry.  TurboTax guides you step-by-step through entering the appropriate information, makes behind the scenes calculations, and puts your tax information on the appropriate tax forms.  In addition, TurboTax tax experts are available to provide personalized guidance so that you can be confident you are getting the biggest tax refund and that your taxes are done right.

First-Time Homebuyers Tax Credit

Under 2008 legislation designed to stimulate the housing market, first-time homebuyers could claim a tax credit of up to $7,500 if they purchased a home between 4/8/08 and 12/31/08. But there was a catch: the credit wasn’t a gift from the government, it was really an interest-free loan that had to be repaid over fifteen years, beginning in 2010.

So, beginning in 2010 you had to file Form 5405 with your tax return each year and add 1/15 of the credit to your taxes owed. For example, if you received the maximum credit of $7,500, you’d divide that credit by 15 and add $500 to your income taxes each year for the next 15 years.

But here’s the problem – most people don’t stay in their home for 15 years. And when you sell your home, the remaining unpaid tax credit is added to your taxes for that year. So if you claimed the $7,500 credit in 2008, repaid $500 with your 2010 tax return, and sold your home in 2011, be prepared for an additional $7,000 tax bite when you file your tax return in April. Ouch!

What if your house didn’t increase in value, and you end up making next to nothing on the sale? Recognizing that the credit repayment could easily exceed the amount you realize, the IRS caps the amount you owe in recapture to the amount of the gain you realize. So if you bought your home for $150,000 and your sales proceeds after costs of sale are only $152,000, the maximum credit you’d have to repay is $2,000.

Here’s another trap to beware of. You don’t have to sell the home to become liable for the tax credit repayment. You can trigger the tax recapture by moving out of your home, even if you continue to own it. So if you moved out in 2011 and kept the home as a rental property, boom – you owe the rest of the tax credit with your 2011 tax return.

Fortunately the IRS has some mercy when circumstances are beyond your control. For example, if you deed your home to your spouse in a divorce settlement, there’s no recapture of the tax credit (but your spouse does have to repay the credit over the remainder of the fifteen years and triggers the recapture if he or she moves out within the 15-year period).

If you lose your home in a foreclosure, your repayment is limited to the amount of the gain. And if you die, you are off the hook as well. And if you or your spouse are in the military and sell because of an order to relocate for extended duty, you don’t have to repay the credit.

The 2008 credit had its traps and pitfalls, but it did help people buy the house they wanted and stimulated home sales. That’s why Congress later extended it to 2009 and 2010. Sorry to say, this isn’t a case where the early bird gets the worm.

When the credit was extended, it was increased to $8,000, expanded to include a reduced credit for those who were not first-time homebuyers, and only has to be repaid if the taxpayer moved out within three years. Unfortunately, those features were not applied retroactively to 2008, leaving early-adopters with an obligation to repay the tax credit that those who came later to the party didn’t have to.

Refinance Points

Buying a Home and Points

We purchased our house 2 years ago and found a fantastic deal with a mortgage lender for a fixed 5% interest rate for 30 years. As we looked through the paperwork we examined all the numbers, including points we’d have to pay to get the mortgage.

In case you’re not familiar with the term, points (also known as loan origination fees or discount points) are basically an up-front payment from a borrower to get a specific rate from the lender. One point is equal to 1% of mortgage loan. In some cases a borrower will pay more in points to get a lower interest rate over the life of the mortgage.

If you buy a house and you plan on staying there for many, many years, then paying those points can be financially beneficial to you and your family over the life of that loan. Run the numbers to see how long it would take to break even by paying more points. If it’s longer than you intend to stay in the house, then you may be better off paying the slightly higher interest rate.

When it comes to taxes, buying a house has some great benefits. For one thing, if you itemize your deductions, you can deduct the interest paid that year for your mortgage. Another bonus is generally you can deduct the points you paid in full for your home (primary residence), provided you meet the requirements as set out by the IRS.

If you purchased a home last year you should have received a document from your lender that includes the amount of mortgage interest you paid (Box 1 ), the points you paid (Box 2), and the mortgage insurance premiums you paid, if applicable (Box 4).

When I Refinance Can I Deduct the Points Upfront?

Now, just 2 years later, we’re back looking at mortgages, this time we’re considering refinancing our home. Interest rates are even lower – we recently had quotes for 3.5% and less. Since we have equity in our home, refinancing has become a financially attractive option for us.

When it comes to filing our taxes, it’s going to be a slightly different story. Unlike a regular mortgage where you can deduct the points upfront, with refinancing, the points you paid to refinance your mortgage are deducted over the term of the new loan.

Thoughts on Deducting Points

I’d love to hear your home financing plans for 2012. How many of you are buying a house this year? How many of you are planning on refinancing you current mortgage?

Qualified Adoption Tax Credit

Expanded Adoption Credit
Adoption can be a great way to bring a child into your home, as well as help that child find a loving home and good opportunities. As anyone who has ever adopted a child can tell you, it is extremely expensive. As a result, the government is willing to help offset some of the costs by offering the adoption tax credit. Here are some things to keep in mind about the expanded adoption tax credit:

• The new, higher amount, thanks to the Affordable Care Act, is $13,360. However, the credit phases out as your adjusted gross income increases. The credit is reduced when you have an AGI of $185,211 to $225,209, and if your AGI is more than $225,210, you are not eligible for the credit.
• You can claim the credit for qualified costs associated with a legal adoption. These costs might include fees charged by the adoption agency, court costs, travel expenses, and attorney costs. All claimed costs should be directly related to the adoption of the child.
• Eligible children must be under the age of 18. Children over the age of 18 are eligible if they are physically unable to provide their own care, for physical or mental reasons.
•  You will need to provide documentation of the adoption with your tax return. Make sure you keep your own copies, of course, and send a copy of the documents that support your case. These might include the final decree, or the placement agreement from an authorized adoption agency. For special needs adoptees, you will need a copy of the paperwork from the state, indicating the special needs status.
• Realize that if you have a tax return that includes an adoption credit, you will  need to send in a hard copy of your tax return along with documentation related to qualified adoption expenses.

Also, since you will have to send in documentation via mail, you might have to wait a little bit longer to receive a tax refund.  You can speed matters up a bit by requesting direct deposit though.

If you are interested in adopting, the government has made it a little more attractive. You can offset some of your costs with a tax credit, which lowers what you owe in taxes dollar for dollar. The fact that the tax credit is now refundable for 2011, allowing you to receive money back even if you don’t owe anything, is especially helpful. Just make sure that you have proper documentation, and that you mail in your tax return so that you receive proper credit.

TurboTax will guide you through the Qualified Adoption Credit and put the proper information on your tax return.

Something that you also want to check are taxes you’d be expected to pay, specifically taxes on your Social Security income.

Social Security

Will My Social Security Income Be Taxed?

Not everyone has to pay taxes on their Social Security benefits.  To see if your Social Security will be taxed, you have to look at your *combined income and your marital status.  According to IRS Publication 915 (Social Security and Equivalent Railroad Retirement Benefits), the income thresholds for Social Security are:

• If you’re single and your total combined income for the year is between $25,000 and $34,000, then up to 50% of your benefits can be taxed.
• If you’re single and your total combined income for the year is greater than $34,000, then up to 85% of your benefits can be taxed.
• If you’re married filing jointly and your total combined income for the year is between $32,000 and $44,000, then up to 50% of your benefits can be taxed.
• If you’re married filing jointly and your total combined income for the year is greater than $44,000, then up to 85% of your benefits can be taxed.

* Combined Income-Combined income when figuring tax on social security income is Adjusted Gross Income plus nontaxable interest plus 1/2 of social security benefits.

SSA-1099: You’ll Need It

If you’re already receiving Social Security benefits, you can use your SSA-1099 form (Social Security Benefit Statement) to determine how much of your benefits are taxable. You should receive it in January and should have the information required for the previous year.

When you file taxes, you’ll need this form, so please keep it in a safe place.  Don’t worry about figuring how much of your social security income is taxable.  TurboTax easily makes the behind the scenes calculations and figures out the accurate amount of social security income that is taxable based on your income entries.

Thoughts on Social Security Income

I’d love to hear your stories. Are you preparing to retire soon? Have you considered your Social Security income?

Moving

1. Did you have out of pocket costs? If your employer paid all the relocation costs and didn’t include it in your income, you came off scott-free and you don’t have any expenses to deduct on your tax return.

Deductible out-of-pocket costs include the expenses of packing and moving your belongings to your new home, temporary storage for up to 30 days, insuring your goods, utility connection costs (but not car registration), shipping pets, and the expenses of traveling to your new home (at 19 cents Jan 1- June 30, 2011, 23.5 cents July 1- Dec 31, 2011 if you use your own car), and lodging expenses on the trip and when you first arrive at your new location.

But surprisingly, meals aren’t included, so if you wine and dine along the way, don’t expect Uncle Sam to foot the bill. Helpful hint: You don’t have to itemize your deductions to claim moving expenses, and no limitations, income thresholds, phase-ins or phase-outs will reduce what you are allowed to claim.

2. Did you move because of a job? If so, your new job must be at least 50 miles farther from your old house than the distance between your old house and your old job. Got that? Let me explain with an example. Let’s say your old commute from home to the office was 10 miles. Now you have a new job in a neighboring town that is 65 miles away from your old house. You pass the test, because the distance from your new job to your old house (65 miles) exceeds your prior commuting distance (10 miles) by at least 50 miles. Helpful hint: It doesn’t matter if the job is your first job, a new job, or the same job in a different location.

3. Did you work full time in the new location? During the first year after your move, you have to work full-time for at least 39 weeks. That means that you can move to a new location and look for work, but you’ll need to land your new job and start work within three months. (If you are self-employed, the period is two years, during which you have to work at least 78 weeks.) Helpful hint: The worked weeks don’t have to be consecutive or even with the same employer.

Here’s how moving cost deductions work in a few special circumstances:

Your move is delayed. Let’s say that you are in a hurry to begin your new job, so you travel to your new location and stay in temporary housing until you can afford the time to make the move. Or your spouse may be finishing up her employment or the kids are finishing school in the old location. You must move within 12 months of starting your new job, or no deduction.

Your spouse was employed in old location but not in the new location. If your spouse has trouble finding work in the new location, or decides to stay home with the kids or go back to school, no problem. Only one spouse needs to meet the employment rules. But you and your spouse can’t alternate working and still get the deduction, since one of you must work 39 weeks in the first year – you can’t combine both your employment histories to satisfy that requirement.

You return to the USA to retire. If you’ve been living and working abroad, and now are retiring in the US, the IRS waives the requirement that you work full-time in your new location. That means that the costs of the move are deductible, regardless of whether you are gainfully employed.

Your tax return is due before you reach the 39-week mark. You can write off your costs even if you haven’t reached the 39-week mark, but beware. If you deduct moving expenses and then don’t pass the time test, you must file an amended tax return or include the moving expenses in your income the next year.

You lose your job. If your employer lays you off, the IRS will waive the 39-week test. The same is true if you are transferred and have to move again before you’ve worked a full 39 weeks in the new location.

Your employer pays part of the moving costs and includes it in your salary. If your employer adds the moving expense reimbursement to your salary, then you have to claim the expenses on your tax return to get your deduction. And if your boss paid for some costs that the IRS doesn’t allow and includes those in your income, you’ll have to pay tax on those reimbursements.

Please note, if you are a member of the armed forces and your move was due to a military order and permanent change of station, you do not have to satisfy the distance or time test.

Don’t worry about knowing how to enter your moving expenses. TurboTax will guide you through the entries and put the information on the appropriate tax forms.

Where's My Refund

Now we are able to receive confirmation that our tax returns were accepted and receive tax refunds quicker than we did in the days of paper filing, despite IRS processing delays.  Although the IRS has a refund cycle chart with estimates of when your tax refund may be deposited or mailed, per the IRS those dates are strictly estimates based on normal  processing.

You may have heard that the IRS is experiencing some processing delays. TurboTax has been working hard to get an update from the IRS on e-filed tax returns so we can give you the latest information regarding IRS delays.

We just received the following update from the IRS and we wanted to make sure you received the most up to date information.

Some taxpayers who filed electronically and received an acknowledgment from the IRS are concerned when they visit “Where’s My Refund” and are told that IRS has no information regarding their tax return.

The IRS informed us on February 10 that this is a temporary situation and it should be resolved in several days.  At that time, you will be able to get an expected refund date when you visit “Where’s My Refund.”

This is an IRS issue that impacts tax returns regardless of who sends them to the IRS. This is not a TurboTax issue.

If you have received an acknowledgment of your tax return from the IRS, then the IRS assures us they have received your tax return and are processing it.

Information on the status of your tax refund will be updated in “Where’s My Refund” once your tax return processes. This is a temporary situation, and the IRS expects to resolve the matter in a few days.

IRS expects the vast majority of tax refunds to continue to be issued
within the historical range of 10 to 21 days.

The IRS also updated its’ Where’s My Refund site with additional information in a FAQ that may help answer your questions.

We want to quickly share any updates we receive from IRS because we know some of you may be waiting for  your tax refund status and estimated direct deposit date.  We will continue to keep you up to date on any more additional information from the IRS.

debt cancellation

However, as the housing crisis was really starting to get going in late December of 2007, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007.  As a result of that legislation, people restructuring certain home loans or losing their homes via foreclosure or short sale have a reasonable chance to avoid the tax hit. Currently, this relief is set to expire on December 31, 2012.

How Do I Know if I Have Canceled Debt?

If an organization lent you money but accepts less than full repayment, it is supposed to report the amount forgiven by issuing Form 1099-C: Cancellation of Debt. A copy of Form 1099-C is sent to you and to the IRS. Generally speaking, when you receive a Form 1099-C, you were supposed to include the amount forgiven in your income.

However, the Mortgage Forgiveness Debt Relief Act provides key exceptions to the general rule of taxing the amount forgiven. In most cases, up to $2 million of debt forgiven or canceled by a mortgage lender can be excluded. While a mortgage modification, a short sale, and an outright foreclosure qualify for the exclusion, if the loans were on a second home, you are out of luck. To exclude a forgiven debt, the amount owed must be on a principal residence.

What Kind of Debt Won’t Qualify for the Exclusion?

Amounts borrowed on your home which were not used to improve (i.e., remodel), acquire, or build your home do not qualify. Home equity loans not used for remodeling are a common problem.  In addition, only your main(principal) home qualifies. So mortgages for vacation homes or amounts borrowed to acquire investment properties won’t qualify for the exclusion if their debt is forgiven under the Mortgage Forgiveness Debt Relief Act.

How Do I Ensure I Don’t Pay Tax on My Mortgage Forgiveness?

If you receive a 1099-C, TurboTax Premier will guide you through the proper questions regarding your cancellation and make the proper entries on the correct forms so you are not taxed if the cancellation of debt is related to your principal residence.

How Else Might I Avoid Tax on Forgiven Loans?

Not all debts are related to homes. Similarly, not all canceled debts are automatically included in income.  In fact, debts canceled as a result of a bankruptcy filing are excluded from income.  TurboTax Premier will also check to see if you experienced this situation.

In the spirit of making lemonade from lemons, be sure to pay attention to the tax saving opportunities available if you are able to gain some traction in reducing the amount you owe on your home. It’s quite possible Uncle Sam might help you out – or at least not make the situation any worse.

Tax Deduction

Overlooked Tax Deductions

I’ll share a few overlooked tax deductions that people miss out on. I’ll group them by family, home, and finally business. I hope it makes it easier for you to find a deduction you can claim next time you file your taxes.

Family

It always starts at home, right? The good news is that taking care of your family can be a tax benefit come tax time.

• Personal property taxes: You may have received a state and local tax bill during the year for your personal property like a recreational vehicle. While it’s a chunk of change out of your budget, the good news is that state and local property taxes related to personal property is tax deductible.
• Medical expenses: You claim the amount of your medical expenses that exceeds 7.5% of your adjusted gross income. Double check to see if you’re overlooking anything. This tax season families with new babies may be able to deduct breastfeeding supplies like a breast-pump.
• Charitable contributions: Many of us keep receipts for charitable donations, but did you also include the supplies you’ve spent helping a non-profit organization?

Did any of the tax deductions mentioned above surprised you? Since we had our little girl this summer I’m happy about breast pumps being included for medical expenses.

Home

We spend so much time at our beloved homes. The roof over our heads can be an even bigger benefit when you consider some of the tax deductions overlooked.

• Moving expenses: If you had to move into a new place due to a job, you may be entitled to a deduction on your moving expenses. You have to meet the distance and time guidelines as outline by the IRS.
• Refinancing points: If you refinanced your house this past year, you may be able to deduct a portion of your points (it’s spread over the length of the loan). If you have a 15 year mortgage, you can deduct 1/15 of the points each year.  Points are pre-paid interest paid to the lender by the borrower to obtain a mortgage loan.  This interest can also be called loan origination fees, maximum loan charges, discount points, or loan discounts.
• Casualty-loss deduction: If you’ve been affected by one of the weather related disasters that happened this past year, you may qualify to get a tax deduction on your loss.

Don’t forget to look at your home mortgage interest you’ve paid as well. It can be a big deduction for some people.

Business

Whether you are looking for work, are working from home or at a company, there are some deductions that you need to be aware of.

• Home Office Expenses: I was surprised to learn that some entrepreneurs put off including their home office expenses with their deductions to ‘be on the safe side’. However if you’re entitled to it, you should claim it. Make sure you keep good record and you shouldn’t have a problem.
• Cell phones: If you have a cell phone used to handle business matters that bill could be tax deductible.
• Journals and Newspapers: Depending on whether or not your subscriptions are job related, this is another overlooked deduction.

What other business related tax deductions do you think you qualify for?

Tax Software to Your Aid

This is a big reason that we use tax software for filing. It’s another set of eyes that can guide you towards the legal tax deductions and credits that you already qualify for. Every year tax laws change and it’s extremely hard to keep up to date with all of these changes.

Thoughts on Tax Deductions

I’d love to hear your thoughts on getting the tax deductions you deserve. How many of you itemized your taxes last year? What deductions did you take? What’s your tax situation this year? Do you qualify for more tax deductions or less?

Interactive by joshritchie

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Taxes for Beginners

A New Job and Your W4

If you’re a beginner at filing your own taxes, chances are high that you’ve started a new job, possibly your first in the “real world”. Congrats! But with adulthood and a full-time job comes the reality that a significant part of your pay won’t get to see the inside of your bank.

When you start a new job, your employer will have you fill out a W4, which is the Employee’s Withholding Allowance Certificate. This document basically wants to know your marital status and how many tax-withholding allowances you intend to claim.

Filling out your W4 correctly will go a long way in easing the pain of your first tax season.

A Large Refund Isn’t Always a Good Thing

Yes, a giant chunk of money is great. Who wouldn’t love the massive refund check, like the one’s you hear about on commercials this time of year? But if you receive large tax refunds year after year, you might want to rethink your money management.

Basically, a tax refund means that you paid the government too much money over the course of the last year. It’s like giving Uncle Sam an interest-free loan. So when you get your refund, the government is giving you back your money. If you make the right adjustments on your W4 in the previous year, you could keep more of your own money and put it to work for you throughout the year.

Filing the Easy 1040EZ Form

If you’re just starting out in life, it’s a good bet that you will qualify for the IRS 1040EZ Form. The major criteria for this form are that you haven’t made any money from investments, you make $100,00 or less per year, you don’t claim any dependents, and you didn’t earn more than $1,500 in interest.

Not only is this form simple to fill out, but if you qualify by meeting the required criteria, the 1040EZ is free at TurboTax.com and TurboTax will easily guide you through you entries. Sure, you could spend $70 by using a tax professional to file your taxes. But if you qualify for the 1040EZ form, your situation probably isn’t complicated enough to justify the money spent.

Standard Deduction vs. Itemized Deduction

As a beginner to filing taxes, it’s important to understand the difference between the standard tax deduction and itemizing your deductions. Any deduction will reduce your amount of taxable income, but choosing the right path will save you the most money.

The standard deduction is just what it sounds like – it’s standard. It’s a set amount of money and just about everyone will qualify for it. For the 2011 tax year, the standard deduction amount for a single person is $5,800, married filing jointly is $11,600, and married filing separately is $5,800 each. You’ll want to use the standard deduction if your itemized expenses do not exceed these amounts.

Itemized deductions are expenses made on certain goods and services (such as medical expenses, mortgage interest paid, giving to charity, and job-related costs) that the government has declared as tax deductible. If all of your qualified itemized expenses add up to an amount greater than the standard deduction amount, then you should use the itemized deduction because that will reduce your taxable income by a greater amount.

One of the easiest ways to find out which deduction you should take is by using your tax software. Most tax software, including TurboTax, will walk you through all of your potential itemized deductions, calculate the totals, and show you which deduction will benefit you the most.

Don’t Wait Until the Last Minute

The final piece of advice to give a tax newbie is to make certain that you file on time. Don’t worry about an extension, don’t wait until the last minute, and don’t let tax fear and intimidation force you to ignore the inevitable. Taxes are due on April 17th this year.

Forget about your history of procrastination, your late night college cram sessions the night before finals, and your constant inability to be on time. Today is a new day! It’s time to plan ahead, prepare in advance, gather all of your tax information as soon as it’s available, and knock this tax stuff out of the park.

Good luck and happy tax season.

“Go ahead and deduct it.”

“I think there’s a tax credit for that.”

Although you might have heard or even uttered one of the sentences above, have you ever wondered or sought to understand its true meaning? While both tax deductions and tax credits can save you a significant amount of money on your taxes, they work in significantly different ways.

Tax Deductions and Credits

What is a Tax Deduction?

A tax deduction is a qualifying expense which reduces your taxable income. A common deduction on your federal income tax return (Form 1040) is for state income taxes you pay. An example of how this works:  Say, when considering all of your income and deductions except for state income taxes, you have $35,000 of taxable income. Furthermore, let’s assume you paid $1,000 in state income taxes for the year. By deducting the $1,000 in state income taxes, your new taxable income is $34,000.

What is a Tax Credit?

Unlike tax deductions, those eligible for tax credits subtract the amount of the credits from their tax liabilities (not taxable income).  A common tax credit is the child tax credit.  If you have a qualifying child, you can take a credit of up to $1,000 per child against your tax liability.  If, besides the child tax credit, you would otherwise have a total federal income tax liability of $2,500, a one child tax credit would reduce that liability to $1,500.

Is a Tax Deduction Better Than a Tax Credit? Is a Tax Credit Better Than a Tax Deduction?

If you were ever faced with a hypothetical choice between a $100 tax deduction and a $100 tax credit, you would want the credit. Unlike a tax deduction, a $100 tax credit reduces your tax dollar-for-dollar ($100).  On the other hand, a tax deduction reduces your taxable income by $100. The resulting amount of tax you save depends on your marginal tax bracket (in everyday language: your tax bracket).  If you are in the 25% tax bracket, a $100 tax deduction reduces your taxes by $25.

Itemized Deductions vs. Standard Deductions

Just about everyone qualifies for the standard deduction.  Although based on your filing status (e.g., single, married filing jointly, married filing separately, or head of household), all people with the same filing status receive the same standard deduction amount. (The only exceptions are for the elderly, disabled, or blind – they receive a somewhat higher standard deduction).

By contrast, itemized deductions are numerous and their amounts vary by individual. Common itemized deductions include:

• Certain medical and dental expenses above a certain threshold
• State income taxes
• Property taxes
• Charitable contributions
• Mortgage interest

There’s a bit of a hitch with itemized deductions, however. You can only benefit from itemized deductions to the extent they exceed your standard deduction.   Said another way, each taxpayer is permitted to take the higher of their standard or itemized deductions – but not both.

Say you are married and filing jointly.  In such a case, your standard deduction is $11,600. Let’s further say the total of your itemized deductions is $11,700. Since your itemized deductions exceed your standard deduction by $100, you take the itemized deduction.  Further, if you are in the 25% bracket, your itemized deductions save you $25 more vs. simply taking the standard deduction.

On the other hand, had your itemized deductions totaled any amount less than the standard deduction you qualify for, you wouldn’t bother taking the itemized deduction – you’d just take the standard.

Whether an expense qualifies for an income tax deduction or tax credit, be sure to take maximum advantage – both lower the taxes you’ll pay.  Don’t worry about trying to figure out which ones you should take, TurboTax will easily guide you and get you the tax refund you deserve.

When are you filing your taxes?  Have you taken advantage of any tax deductions or credits yet?

Finance

Here are a few tips to help you get started:

Reduce Your Credit Card Debt

Did you know that 14 million Americans are still paying off their holiday bills from 2010? Or that the average household currently has about $15,000 in credit card debt? As you rethink needs versus wants in 2012, regain control by paying down the balance of the credit card with the highest interest rate first.  There are free sites out there like Mint.com that will help you establish a budget and goals.  Alternately, look into doing a balance transfer which will help you consolidate high-interest rates to less expensive cards.

Save More & Spend Less

Get this: About 60% of overall purchases are spontaneous, and the average cost of an impulse buy is about $100. Stop the madness!  You can put more cash in your pocket in 2012 by separating your wants from your needs.  Need cash immediately or want to kick start your savings? File your taxes now! Tax refunds are averaging about $3,000 and if you choose e-file and direct deposit you may get that money back in your pocket in as few as 7 days versus 4 – 6 weeks for a paper return. You can also save on fees and learn about your fiscal health by using TurboTax.

Boost Your Credit Score                  

These days, you need a score of about 720 or higher to get the best rates. Score high and you can save thousands of dollars; score low, and it’s not only tough to get a loan, but also rent an apartment or even land a job. Make 2012 the year you improve your credit score. You can do this by paying your bills on time (that accounts for 35% of your score), paying down your debts (the amount you owe is 30% of your score), and keeping the credit card spending under control. You should utilize no more than 30% of your available credit and ideally only 10%.

Fund An Emergency Account

Fewer than four in ten Americans have a fully funded rainy day account! That’s a scary prospect, given how fragile this recovery is. You need a cushion: if possible, at least six months to a year’s worth of salary set aside in an accessible account (such as a money market account) to cover unexpected expenses or replace interrupted income.

Get Serious About Retirement

First, run the numbers to see just how much money you’re going to need to live comfortably in your retirement. Then, get to work. Stash away as much as you can into an employer-sponsored plan (the contribution limits have gone up from $16,500 in 2011 to $17,000 in 2012; $22,500 for those 50 years of age or older), and take full advantage of company matches.  You should also consider spending less, working longer and redefining your vision of retirement.

Earned Income Tax Credit

Earned Income Tax Credit Eligibility

To qualify for the EITC, you must have a Social Security Number, work for pay, and earn less than a certain dollar threshold (amounts detailed later).  There are many other requirements including USA citizenship/resident alien status and limitations on investment and foreign income, but those are typically not issues for people otherwise qualified for the EITC.

Work for Pay

Unemployment income doesn’t help you qualify for the EITC. Neither does bank interest.  In order to receive any money via the EITC, you must work. You can have a traditional job as an employee or you can be your own boss and earn money from self-employment.  But one way or another, you’ve got to earn some money in order to qualify for the EITC.

Income Limits

For the 2011 tax year (the tax return you’re about to file), your earned income (what you receive due to your work), and your adjusted gross income (AGI, the sum total of all of your earnings less certain deductions) must be less than:

• $43,998 ($49,078 married filing jointly) with three or more qualifying children

• $40,964 ($46,044 married filing jointly) with two qualifying children
• $36,052 ($41,132 married filing jointly) with one qualifying child
• $13,660 ($18,740 married filing jointly) with no qualifying children

Qualifying Children

As you can see above, the relevant income limits are much more generous if you take care of at least one qualifying child.  Your child qualifies if he or she meets all of the following conditions:

• Has a valid Social Security Number
• Is your child (natural, adopted or foster), grandchild, sibling, step-sibling, half-sibling, niece, or nephew
• Younger than you and younger than 19, unless a student (in which case your child must be less than 24), or totally and permanently disabled (in which case there is no age limit)
• Lives with you in the United States for more than half of the year
• The child doesn’t file a joint tax return.

For more information or to help determine your eligibility for the Earned Income Tax Credit, use EITC Finder app by Intuit.

Claiming the EITC

The EITC Finder  app and TurboTax can help you claim the Earned Income Tax Credit.  Note that unlike many other tax credits, the EITC is a refundable tax credit. This means that the EIC can not only eliminate any income tax liability you might otherwise face but, to the extent your tax credit exceeds your liability, you can pocket the difference. It is for this reason that the EITC is one of the most important tax considerations.

Make sure to review the table above and use the EITC Finder app– if your income is below the relevant threshold, .  It just might mean an extra $2,000 or more in your pocket. Few other tax maneuvers can earn you that kind of cash!

earned income credit app

According to  the IRS, an estimated 20 to 25 percent of qualified workers fail to claim the EITC each year.  Intuit has just launched the free app called the EITC Finder to help determine if you can reap the benefit of one of the most missed tax credits, which may put up to $5,700 in your pocket.

The Earned Income Tax Credit is a tax credit for people who work, but have low wages.  The tax credit not only reduces the amount of tax you owe, but it also may give you a tax refund even if you didn’t pay enough income taxes.

In order to claim EITC, you must meet specific criteria, which is where the new app comes in to simplify the process of helping you determine your EITC eligibility by guiding you through a few simple questions about your marital status, dependents, and wages.

If you are eligible, the app estimates how much will be applied to your federal and state tax refund.   The EITC Finder then tells you how to easily claim your credit by preparing and filing your tax return with one of the free products offered through IRS Free File program, which includes more than a dozen brand-name tax software products donated by private companies, including Intuit’s TurboTax Freedom Edition.

The app, available for iPhone, iPod touch and Android, also provides nonprofit organizations and others that serve lower-income tax filers with an easy and flexible way to help their clients determine EITC eligibility anytime, anywhere with Internet access.

The EITC Finder is now available in both English and Spanish from the App Store, Android Market or Amazon App Store .

More Help if You Need it

Intuit’s Free File product offer , TurboTax Freedom Edition, is specifically targeted to EITC-eligible taxpayers and all filers with an adjusted gross income of $31,000 or less. It is also available to active duty military personnel with an adjusted gross income of $57,000 or less in 2011.

Since 1998, Intuit has donated more than 22 million tax returns to low-and moderate-income taxpayers. In 2010 alone, Intuit donated more than 2.15 million federal and state tax returns via the IRS and state Free File programs.

Find Tax Assistance in Your Community

The Intuit Financial Freedom Foundation works with nonprofit partners across the country to help more taxpayers access its Free File product offering. These include the nation’s network of IRS Volunteer Income Tax Assistance programs, where taxpayers can get help from a volunteer to prepare and file their taxes for free. The Intuit Financial Freedom Foundation is partnering with sites in 11 states and 48 communities to bring TurboTax Freedom Edition to taxpayers this year.

Even if you had a chance to catch our commercials highlighting our professionals, here’s a chance find out more about one of our stars, Joy Shaw, CPA.

Joy Shaw, CPA

What is your area of expertise and how long have you been an expert in that area?

“I am a tax professional with over 30 years experience in tax and accounting.  I received my Bachelors in Accounting from the University of Illinois and passed the CPA exam in 1980.  I worked in public accounting at Coopers and Lybrand for 12 years (10 years in tax) specializing in high net worth individuals, banking, and consolidated tax filings.”

“I have been at intuit for over 18 years, where I have done tax technical training, worked as a Tax Analyst Programmer, Tax Development Manager for Small Business products, Federal Individual and State Individual products, and Electronic Filing Import.  I presently work as a Tax and Customer Experience leader for the Tax Review Board.”

What do you like about being a Tax Expert for TurboTax?

“I love being a tax expert for TurboTax, because we get to help 20 million taxpayers get their taxes done.  We also are able to stay abreast of tax laws and hear about tax changes before many tax preparers in the industry.  I also love being able to contribute to making the tax law changes easier for the general public to understand.”

What do you like to do in your spare time?

“I like running, aerobics, dancing, reading good mysteries, Sudoku, puzzles, and spending time with my husband and 3 children.”

What is the top tax question that you hear and what is your answer?

“The most common question I get asked is how to save money so you don’t have to pay as much in taxes.  My answer is to contribute to your retirement funds, either 401K or IRAs, take advantage of all your eligible tax credits like education, child care, and earned income credit.”

Our TurboTax professionals have a wealth of experience.  Check back soon to find out about more of our Super Stars!

Interactive by joshritchie

So where will you spend the Super Bowl?

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