Category Archives: Tax Break

Holiday Gifts with Tax Benefits

Holiday Gifts with Tax Benefits Come in Many Forms, Shapes and Sizes

Some holiday gifts you provide to members of your family, employees and others may also yield tax benefits. Here are some examples:  Continue reading

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Tax Tips for Uber or Lyft Drivers

As an Uber or Lyft driver, you are an independent contractor and treated differently under the IRS code. With this comes new rules when it comes to your taxes. Understanding the tax code can help you minimize your tax liability. Watch the video below for more details or call our office for help. Continue reading

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Summer Vacation, Who Cares for the Kids?

Summer vacation is here! There is a tax break that working parents should know about. Many working parents must arrange for care of their children under 13 years of age during the school vacation periods. If the child is handicapped, then it is for any age. A popular solution that comes with a tax benefit is a day camp program. The cost of day camp can count as an expense toward the child and dependent care credit. But be careful, expenses for overnight camps do not qualify. Continue reading

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Earned Income Tax Credit: Do Not Miss Out

earned income tax credit, eitc, eic, earned income creditThe Earned Income Tax Credit (EITC) is a tax benefit for working people who have low to moderate income. It provides a tax credit that is treated like tax withholding. It goes to pay an individual’s tax liability, and any excess is paid to the individual in the form of a tax refund.

Earned Income Tax Credit Qualifications

Qualifications for the credit are based upon the amount of the filer’s earned income, the spouse’s earned income if the filer is married, and the number of qualified children on the tax return. Any child must either be under the age of 19 or be a full-time student under the age of 24 at the end of the year. Low-income earners between the ages of 25 and 64 who do not have a qualifying child may also qualify.

What Does Earned Income Mean?

Generally, earned income means income that is earned. Income from working, such as W-2 wages and self-employment income is considered earned income.

The credit increases as the taxpayer’s earned income or adjusted gross income (AGI) increases until it reaches a plateau, where it remains constant (at the maximum amount) until it reaches the AGI phase-out threshold. Once the threshold amount is exceeded, the credit is reduced by a set percentage; if income exceeds the top of the phase-out range, no credit is allowed.

How is the Earned Income Tax Credit Computed?

Computing the credit, like all things tax, is complicated. The credit is determined using IRS tables that reflect the dollar amounts at which phaseout begins and ends. However, the illustration below can help approximate the credit for 2015.

EIC, Earned Income Credit, EITC, Earned Income Tax Credit

EIC Example

A married couple with two children has earned income of $20,000 and a modified AGI of $21,000. If we multiply their earned income by their credit percentage ($20,000 x .40), we come up with $8,000. However, that exceeds the maximum credit of $5,548 for a married couple with two children. This means their credit before any phaseout is $5,548. Since their modified AGI is less than the phaseout threshold, then their EITC is $5,548. Had their earned income been $10,000, then their credit would have been $4,000 ($10,000 x .40). If either their earned income or their modified AGI had exceeded $49,974, their EITC would have been totally phased out. They would not have gotten any credit.

What Else Should We Know?

There is also a limit on investment income a taxpayer can have and qualify for the EITC. For 2015, that limit is $3,400. If a taxpayer qualifies for EITC but has investment income in over $3,400, the taxpayer will not receive any EITC.

Individuals that claim either the foreign earned income or foreign housing exclusion also will not qualify for the earned income credit.

Members of the military can elect to treat all or none of their nontaxable combat pay as earned income for the purposes of computing the EITC. The calculation providing the larger EITC benefit can be used.

Please understand that a taxpayer who might not normally be required to file a return might still benefit from filing to claim the EITC.

However, because the potential payout of this credit is so generous, it is the constant target of scammers. In 2014 the government paid out nearly $18 billion in improper EITC payments. Besides scammers, the qualification for EITC is frequently contested between divorced parents who are both attempting to claim the same child in an effort to qualify for the EITC.

The IRS is authorized to ban taxpayers from claiming the EITC for two years if it determines during an audit that they claimed the credit improperly. This can be due to reckless or intentional disregard of the rules. Last year, there were more than 67,000 two-year bans in effect. The ban lasts 10 years if credit was claimed in an earlier year due to fraud.

IRS Promotes the Earned Income Tax Credit – Use It Wisely

The government wants those who are entitled to the credit to claim it. That is why the IRS widely promotes the credit. However, the rules are complex and best addressed by a tax professional. Here is where Worthtax can help. If you have questions about how the EITC might apply to you, call Alex at call Alex Franch, BS EA at 781.849.7200 for additional information. He understands the details involved with the Earned Income Credit and the IRS requirements. We have locations in Quincy, Weymouth and Dedham.

Other articles about taxable income:

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9 Tax Tips for Disabled Taxpayers

disabled, disability, wheelchair, wheelchair race, disabled taxpayersDisabled Taxpayers may qualify for a number of tax credits and benefits. Parents of children with disabilities may also qualify. Listed below are several tax credits and other benefits that are available if you are disabled and listed on the federal tax return. This applies to any other dependent in your household who is listed on the tax return as well. Oh, and do not minimize any disability, as you may be surprised what qualifies an individual as a disabled taxpayer.

1. Increased Standard Deduction

If a tax return filer and/or spouse are legally blind, they are entitled to a higher standard deduction on their tax return.

2. Exclusions from Gross Income

Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.

3. Impairment-Related Work Expenses

Employees, who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.

4. Credit for the Elderly or Disabled

This credit is generally available to certain taxpayers who are 65 and older. It is also available to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.

5. Earned Income Tax Credit

EITC is available to disabled taxpayers as well as to the parents of a child with a disability. If you retired on disability, taxable benefits that were received under your employer’s disability retirement plan are considered earned income. This is until a minimum retirement age is reached. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund.

Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65, may qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund that is received because of the EITC will not be considered income when determining whether a taxpayer is eligible for benefit programs, such as Supplemental Security Income and Medicaid.

6. Child or Dependent Care Credit

Taxpayers who pay someone to come to their home and care for their dependent or disabled spouse may be entitled to claim this credit. For children this credit is usually limited to the care expenses paid only until age 13. However, there is no age limit if the child is unable to care for him or herself.

7. Special Medical Deductions

In addition to conventional medical deductions, the tax code provides special medical deductions related to disabled taxpayers and dependents. They include:

– Impairment-Related Expenses

Amounts paid for special equipment installed in the home, or for improvements, may be included in medical expenses. However, their main purpose must be for medical care for the taxpayer, the spouse, or a dependent. The cost of permanent improvements that increase the value of the property may only be partly included as a medical expense.

– Learning Disability

Tuition fees paid to a special school for a child who has severe learning disabilities caused by mental or physical impairments. These include nervous system disorders, and can be included in medical expenses. A doctor must recommend that the child attend the school. Tutoring fees recommended by a doctor for the child’s tutoring by a teacher who is specially trained and qualified to work with children who have severe learning disabilities may also be included.

– Drug Addiction

Amounts paid by a taxpayer to maintain a dependent in a therapeutic center for drug addicts. This includes the cost of the dependent’s meals and lodging, and are considered medical expenses.

8. Exclusion Of Qualified Medicaid Waiver Payments

Payments made to care providers caring for related individuals in the provider’s home are excluded from the care provider’s income. Qualified foster care payments are amounts paid under the foster care program of a state (or political subdivision of a state or a qualified foster care placement agency). You may want to call Alex Franch, BS EA at our office, 781-849-7200 for more details regarding this waiver, as it does get complicated.

9. ABLE Accounts

Qualified ABLE programs provide the means for individuals and families to contribute and save for the purpose of supporting individuals with disabilities in maintaining their health, independence, and quality of life.

Federal law enacted in 2014 authorizes the States to establish and operate an ABLE program. ABLE is an acronym for Achieving a Better Life Experience. Under the ABLE program, an ABLE account may be set up for any eligible state resident, which would generally be the only person who could take distributions from the account. ABLE accounts are very similar in function to Sec 529 plans. However, they should not be considered as estate planning devices, as is sometimes the case with 529 plans. The main purpose of ABLE accounts is to shelter assets from means testing required by government benefit programs. Individuals can contribute to ABLE accounts subject to Gift Tax limitations. Distributions to the disabled individual are tax free if the funds are used for qualified expenses of the disabled individual. These accounts are new and must be established at the state level before taxpayers can start making contributions to them. Call Alex Franch, BS EA, at 781-849-7200 for more information. For more information, you can read the March 23, 2015 letter about the Qualified Able Program published here.

Would You Like More Information About Disabled Taxpayers?

For more information on tax credits and benefits available to disabled taxpayers, please call Alex Franch, BS EA at 781-849-7200. Or you may visit one of our locations.

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photo credit: IMG_0127.JPG via photopin (license)
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Tax Break for Sale of Inherited Property

2015_04_22 Tax Break for Sale of Inherited PropertyPeople who have inherited property are often concerned about the taxes they will owe on any gain from that property’s sale. After all, the property may have been purchased years ago at a low cost by a deceased relative but may now have vastly appreciated in value. The usual question is: “Won’t the taxes at sale be horrendous?”

Clients are usually pleasantly surprised by the answer. Special rules apply to figuring the tax on the sale of any inherited property. Instead of starting with the decedent’s original purchase price to determine gain or loss, the law allows taxpayers to use the value at the date of the decedent’s death as a starting point. Sometimes an alternate date is chosen. This often means that the selling price and the inherited basis of the property are practically identical. There is little, if any, gain to report. In fact, the computation frequently results in a loss, when it comes to real estate that is subject to large selling expenses such as realtor commissions, etc.

Certified Appraisal of your Inherited Property

This also highlights the importance of having a certified appraisal of the home to establish the home’s tax basis. If an estate tax return or probate is required, a certified appraisal will be completed as part of those processes. If not, one must be obtained to establish the basis. It is generally not acceptable just to refer to a real estate agent’s estimation of value or comparable sale prices if the IRS questions the date of death value. The few hundred dollars it may cost for a certified appraisal will be worth it if the IRS asks for proof of the basis.

Deductible or Not?

Another issue is whether a loss on an inherited home is deductible. Normally, losses on the sale of personal use property such as one’s home are not deductible. However, unless the beneficiary is living in the home, the home becomes investment property in the hands of the beneficiary. A loss is deductible but subject to a $3,000 ($1,500 if married and filing separately) per year limitation for all capital losses with any unused losses carried forward to a future year.

In some cases, courts have allowed deductions for losses on an inherited home if the beneficiary also lives in the home. In order to deduct such a loss, a beneficiary must try to sell or rent the property immediately following the decedent’s death. In one case, where a beneficiary was also living in the house with the decedent at the time of death, loss on a sale was still deductible, when the heir moved out of the home within a “reasonable time” and immediately attempted to sell or rent it.

What Changes are Ahead for Inherited Property?

This tax treatment could change in the future, however. The President’s Fiscal Year 2016 Budget Proposal includes a proposal that would eliminate any step up in basis at the time of death and would require payment of capital gains tax on the increase in the value of the home at the time it is inherited.

Looking for tax information about inherited Property?

Perhaps you are settling an estate and have a home you inherited? We will provide accurate tax information for you. WorthTax are tax experts. Maybe you are in a bind and you did not make the deadline to file your taxes. We can help, even with past years. Contact this office at call Alex Franch, BS EA at 781.849.7200 for assistance in planning your real-estate transactions. Worthtax has locations in Quincy, Weymouth and Dedham.

Sources and Resources to Sell Inherited Property?

 

 

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