Tax Tips for Individuals

Tax Incentives for Higher Education

The tax code provides tax incentives for families who are paying for, or soon will be paying for, college costs or who are repaying student loans.

You may be able to claim a Hope and Lifetime Learning Credit for the qualified tuition and related expenses of the students in your family (i.e., you, your spouse, or an eligible dependent) who are enrolled in eligible educational institutions. Different rules apply to each credit. If you claim a Hope Scholarship Credit for a particular student, none of that student's expenses for that year may be applied toward the Lifetime Learning Credit.

You may be able to claim a tuition deduction of up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

Ask me for details. or 262-421-1170 or 920-299-5120

Check Payroll Withholding to Avoid a Tax Surprise

If you owed income tax when you filed your tax return last year or received a large refund, you should probably adjust your tax withholding with your employer. Owing tax at the end of the year could result in you having to pay additional interest and penalties along with your tax return. And, if you had a big refund, you lost out on having the money earning interest or dividends throughout the year. Numerous life changes, such as mid-year pay cuts or raises, changing jobs, getting married or becoming single again, buying a home or having children, can result in big refunds or withholding shortfalls.

We can help you do the calculations so that you can submit a new Form W-4, "Withholding Allowance Certificate", to your employer.

Ask me for details. or 262-421-1170 or 920-299-5120

5 Tips for Early Preparation

Earlier is better when it comes to preparing your records for your CPA to do taxes. We encourage everyone to get a head start and just "git er done." Not only do you avoid the last-minute rush, but early filers get a faster refund and a more pleasant experience with their CPA.

There are five easy ways to get going before April 15th:
  1. Gather your records. Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.
  2. Get an Income Tax Organizer. They’re available simply by asking us.
  3. Take your time. Don’t forget to leave room for a coffee break when filling out your tax organizer. Rushing can mean leaving something out by mistake — and that can be expensive!
  4. Double-check your Social Security number. This is among the most common errors on tax returns. Taking care on this reduces your chances of hearing from the IRS. We'll also be happy to check for other issues and opportunities for you, regardless of how you get your tax information to us.
  5. Get the fastest refund. When you file early, you get your refund faster. Using us to e-file your return with direct deposit gets you a refund typically in half the time as paper filing.

Ask me for details. or 262-421-1170 or 920-299-5120

Amended Returns

Oops! We discovered an error on a prior year tax return (before the IRS discovers it). We may need to amend your return.

We should file an amended return if any of the following were reported incorrectly:
  • Your filing status
  • Your total income
  • Your deductions or credits
Generally, we'll use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed paper or electronically-filed Form 1040, 1040A, or 1040EZ return.

If we're filing to claim an additional refund, you'll have to wait until you receive your original refund before we can file the amended return. You may cash that check while waiting for any additional refund. If you owe additional tax for the prior year, then Form 1040X must be filed and the tax paid by April 15 of this year, to avoid any additional penalties and interest.

You generally must file Form 1040X to claim a refund within three years from the date you filed your original return, or within two years from the date you paid the tax, whichever is later. 

Amending returns is complex and the entire return will be phyically reviewed by an IRS agent. Please contact me before filing any amended returns. or 262-421-1170

Filing an Extension

If you can't meet the April 15 deadline to file your tax return, we can get you a six-month extension of time to file. The extension will give you extra time to get the necessary tax paperwork to us, but it does not extend the time you have to pay any tax due. You'll owe interest on any amounts not paid by the April (or quarterly) deadlines, plus a late payment penalty if you have paid less than 90 percent of your total tax by then.

You must make an estimate of the minimum amount of tax due when you request an extension. We suggest sending a payment for the estimated balance due, but this is not strictly required to obtain the extension.

To get the extension of time to file, you just need to contact us anytime by phone, fax or e-mail up to the filing deadline (usually April 15th). We will need to get a little bit of information from you to prepare the extension request.

Ask me for details. or 262-421-1170 or 920-299-5120

Car Donations

The rules for taking a tax deduction for donating vehicles to charities are a bit more complicated than other types of charitable deductions. If the claimed value of the donated vehicle, boat or plane exceeds $500 and the item is sold by the charitable organization, your deduction is limited to the gross proceeds from their sale.

To take a deduction for the donation of your vehicle there are some special rules to be aware of:

Ensure that the Organization is "Qualified."

You must make sure that the contributed vehicle goes to an eligible organization to be tax deductible. The list of qualified organizations changes at least annually. We can assist you to check that an organization is qualified. Please make a record of the organization’s correct name and its headquarters location, and pass this along to us when we prepare your tax return. Churches, synagogues, temples, mosques and governmental entities are not required to apply for this exemption in order to be qualified.  Please contact us if you’re considering a car donation for your tax return!

Charitable Contributions

Donations to charities or governmental agencies can add up to a nice tax deduction for you if you itemize deductions on IRS Form 1040, Schedule A.

Here are a few tips to help make sure you get the benefit you deserve on your tax return from your charitable giving:

You cannot deduct contributions made to specific individuals, political organizations and candidates, the value of your time or services and the cost of raffles, bingo, or other games of chance.

To be deductible, contributions must be made to qualified organizations.

Organizations can tell you if they are qualified and if donations to them are deductible. We can verify this for you. Please contact us anytime for assistance with this.

Tax Credit For Hybrid Vehicles

There is a tax credit known as the Alternative Motor Vehicle Credit. This tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.

Hybrid vehicles are powered by both an internal combustion engine and a rechargeable battery. Most hybrid vehicles qualify for the credit. Please let us know if you acquired such a vehicle and we'll be sure to claim the credit on your tax returns in the year your buy it. More than 40 different models of hybrids are eligible for the credit.

The credit is available only to the original purchaser of a new qualifying vehicle. If the qualifying vehicle is leased the credit is available only to the leasing company.

To find out whether your car qualifies for the hybrid tax credit and the maximum amount of that credit, you can go to the website and search for "qualified hybrid vehicles."

Earned Income Tax Credit for Certain Workers

The Earned Income Tax Credit (EITC) is a federal tax credit for individuals who work but do not earn high incomes. Qualified taxpayers who claim the EITC can pay less tax, pay no tax or even get a tax refund.

The IRS estimates that 25 percent of people who qualify don’t claim the credit and millions of others claimed the credit in error.

EITC is based on the amount of your earned income and the number of qualifying children in your household who meet relationship, age and residency requirements. The maximum credit for 2010 tax returns is $5,666 for workers with three or more qualifying children. However, workers without qualifying children may also be eligible for a smaller credit amount.

Workers who earned $48,362 or less from wages, self-employment or farm income last year could receive larger refunds if they qualify for the EITC. There's a lot to know about qualifying for EITC. Please contact us for help.

Are you eligible for tax credits?

We will help you claim tax credits for which you are eligible when completing your income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed, so they're a lot more valuable than deductions. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Below are some of the credits you might be eligible to claim:
  • Earned Income Tax Credit
    This is a refundable credit for low-income working individuals. If the EITC exceeds the amount of taxes owed, you get a refund.
  • Child Tax Credit
    This credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses.
  • Child and Dependent Care Credit
    This is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable you to work. The credit is a percentage of a limited amount of those qualifying expenses.
  • Adoption Credit
    Adopting parents can take a tax credit of up to $13,170 for qualifying expenses paid to adopt a child.
  • Credit for the Elderly and Disabled
    This credit is available to citizens with income up to a limited amount who are either age 65 or older or are under age 65 and retired on permanent, total disability.
  • Education Credits
    you may be eligible to claim the Hope Credit or the Lifetime Learning Credit for paying higher education costs. The Hope Credit is for tuition and related expenses for the first two years of college. The Lifetime Learning Credit is available for all years of college. You can't claim both credits for the same student in one year.
  • Retirement Savings Contribution Credit
    You may be able to claim a credit for a percentage of qualified retirement savings contributions, such as contributions to an IRA, SEP or SIMPLE plan. To be eligible, you must 18 or over, not a student and not claimed as a dependent. There's also income and contribution limits.
There are other credits too.  Please contact us so we may analyze your specific situation, and offer claim all eligible credits.

Home Refinancing

If you refinanced your mortgage last year, you may be eligible to deduct some of your closing costs.

Generally, if you itemize deductions, the “points” you paid to get your mortgage may be deductible as mortgage interest, but not all at once. This differs from points you might pay to obtain your original home mortgage. Usually, points paid to refinance a home mortgage are deducted over the life of the loan, as payments are made (or the remaining time on the original mortgage, if with the same lender).

However, if you used part of the refinanced mortgage money to finance home improvements and meet certain other requirements, a ratable portion of the points may be fully deductible in the year the points were paid. And, if your refinancing a second time, the balance of points paid for the first refinanced mortgage can usually be deducted in the year of the second refinancing.

There are some income limitations too which can affect the amount of deductions you can take. Please be sure to let us know if you’ve refinanced, and we'll be sure to get you the maximum deductions allowed.

Credit for the Elderly or Disabled

If you are 65 years or better, you may be able to take the "Credit for the Elderly or the Disabled." Also, if you've received a determination from the IRS that you are 'retired on permanent and total disability,' you may be eligible for the credit.

You can take this credit if your nontaxable income from Social Security or other nontaxable pension is less than $3,750 to $7,500 (depending on your filing status) and you are a U.S. citizen or resident at the end of the tax year and you are age 65 or better, or you are under 65, retired on permanent and total disability, received taxable disability income, and did not reach mandatory retirement age before the beginning of the tax year.

Retired on permanent and total disability means that:
  • You were permanently and totally disabled when you retired, and
  • You retired on disability before the end of the tax year.
Even if you do not retire formally, you are considered retired on disability when you have stopped working because of your disability. If you feel you might be eligible for this credit, please contact us for assistance.

Selling your Home

If you sold your main home, and were lucky enough to have a gain from the sale, you may be able to exclude up to $250,000 of the gain ($500,000 for married taxpayers filing jointly) from your taxable income.

In general, you are eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its sale. Generally, you are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements as well as exceptions to the two year rule.

If you file a joint return for the year of the sale, you can exclude the gain if either you or your spouse qualify for the exclusion. However, both of you would have to meet the use test to claim the $500,000 maximum amount.

To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The two years may consist of 24 full months or 730 days. Short absences, such as for a summer vacation, count as periods of use. Longer breaks, such as a one-year sabbatical, do not.

If you or your spouse are on qualified official extended duty in the Uniformed Services, the Foreign Service, or the intelligence community, you may elect to suspend the five-year test period for up to 10 years.

If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home.  Talk with us and we'll be sure you get the most from this gain exclusion.

Foreign Income

If you earned money from foreign sources, it is included in your taxable income unless it is exempt under law. All U.S. citizens are taxed on their worldwide income, whether living here or abroad.

Foreign source income includes earned income, such as wages, tips, and consulting fees. It also includes unearned income, such as interest, dividends, capital gains, pensions, rents and royalties.

Citizens living outside the U.S. may be able to exclude up to $91,500 of their foreign source income if they meet certain requirements. However, the exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S. Please be sure to let us know if you may have earned foreign income so that we can ensure your compliance with the applicable regulations.

Deductible Taxes

If you file Form 1040 and itemize deductions, you may be able to deduct certain non-business taxes:

  1. State and local income and sales taxes
  2. Real estate taxes
  3. Personal property taxes
  4. Foreign income taxes
This year, you have a chance of claiming a state and local tax deduction for either income or sales taxes.

You can deduct taxes paid to state or local governments during the year. If deducting sales taxes instead, you may deduct actual expenses or use optional tables provided by the IRS to determine your deduction amount, without having to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid to the general sales tax rate.

Deductible real estate taxes are usually any taxes paid during the year on real property. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with information on escrowed taxes paid on your account.  Please be sure to give us copies of these for us to get all the deductions you deserve.

Gift Giving

If you gave any one person gifts valued at more than $13,000, it is necessary to report the total gift to the IRS. In rare circumstances, you may even have to pay tax on the gift.

Gift recipients do not have to report the gift to the IRS or pay any tax on its value.

You make a gift when you give property, including money, or the use of or income from property, without expecting to receive something of equivalent value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you also may be making a gift.

There are lots of exceptions to the gift tax rules. The following gifts do not count against the annual limit:
  • Tuition or medical expenses that you pay directly to an educational or medical institution for someone's benefit
  • Gifts to your spouse
  • Gifts to governmental units of any level
  • Gifts to a political organization for its use
  • Gifts to charities
If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift. Please contact us if you think you may be subject to the gift tax reporting or payment requirements.

Marriage or Divorce…

Newlyweds and the recently divorced should make sure that names on their tax returns match those registered with the Social Security Administration (SSA). A mismatch between a name on the tax return and a Social Security number (SSN) will cause your tax return to be rejected by the IRS.

It's easy to inform the SSA of a name change by filing Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. Please contact us for assistance with your name change situation.

Filing Deadline and Payment Options

If you’re trying to beat the tax deadline, there are several options for last-minute help. If you need a form or publication, you can download copies from the Forms page on our website. If you find you need more time to get your tax information to us, let us know ASAP so that we can get a five or six month extension of time to file. If you have trouble paying your tax bill, there are several payment options available from the IRS.

The extension will give you extra time to file with the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amounts not paid by the deadlines, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date (or 100% of the amount of your prior year tax - a so-called "safe harbor" exception).

Refund, Where’s My Refund?

Are you expecting a tax refund this year? Your refund should be issued in about six to eight weeks from the date IRS receives your return; 3 or 4 weeks if you filed your return electronically, and even faster if you choose direct deposit.

Direct deposit into a bank account is more secure because there is no check to get lost. Please double check your routing and account numbers when giving us your banking information to ensure there are no delays due to error.

Some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.

To check the status of an expected refund, use "Track My Refund" an interactive tool available on our links page. Simple online instructions guide you through a process that checks the status of your refund after you provide identifying information from your tax return.

Tips and Taxes

Tip income you receive as an employee from services is taxable income, advises the IRS.

As taxable income, these tips are subject to federal income, Social Security and Medicare taxes, and usually state income tax as well.

You must keep a running daily log of all your tip income and tips paid out. This includes cash that you receive directly from customers, tips from credit card charges from customers that your employer pays you, and the amount of tips you paid out to other employees through tip pools or tip splitting and the names of those employees.

If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes and to report the correct amount of your earnings to the Social Security Administration (which will affect your benefits when you retire or if you become disabled, or your family's benefits if you die). Contact us so your wages are properly reported!