TAX TIPS FOR EVERYONE
Your Tax Preparation Checklist for 2018
New Tax Reform Highlights
In order to claim your new child as a dependent on your tax return, the first thing you need to do is get him or her a Social Security number. If you don't, you'll delay the process. You can request a Social Security card at the hospital when you apply for a birth certificate.
$1,000 Child Credit
Kids are great. A new baby gives you a tax credit and the ability to claim a tax deduction until your child reaches the age of 17. With a credit, your tax bill is reduced dollar for dollar, while a deduction reduces the amount of income that Uncle Sam can touch. Income limits do apply, so ask your local tax pro for details.
If you're a single parent, you may be able to file your returns as head of household rather than single. The advantage? You get a bigger standard deduction, and you'll fit into a better tax bracket. In order to be considered head of household, you must pay more than half the cost of providing a home for a qualifying person (your child).
Working parents don’t miss this tax break on your childcare expenses. You qualify if:
- Your child is younger than age 13, and
- You pay someone else to watch your child while you work or look for work, and
- You and your spouse have earned income, or one of you is a full-time student.
You can receive a 20–35% tax credit for up to $3,000 of your childcare expenses for one child or up to $6,000 for two or more children. The credit is based on your income, so the more you make the less credit you’ll receive.
If it’s available at your workplace, you might get a better deal by paying for childcare expenses through a Flexible Spending Account (FSA). The money you contribute is subtracted from your paycheck pre-tax, which means you’ll avoid paying federal, Social Security and Medicare taxes on that money. So, contributing the maximum $5,000 can save you at least $1,133—more if you are in a higher tax bracket. You’ll save even more if you live in a state that has an income tax.
Remember, you and your sweetie might need to adjust your withholding from work.
If you get a big tax refund each year, it doesn't mean that you are getting a bonus from the government. You overpaid your taxes from the previous year, and they are just sending back your over-payment. That's a bad idea. You just let the government use your money interest-free for one year. Make that money work for you!
Make sure that both of you adjust your withholdings at work. When you pay your taxes each year, you want to come as close to zero as possible (meaning you don't owe the government, and they don't owe you). This is true for singles and married couples.
Sending Kids to College
Did you know that Uncle Sam lets you deduct some of your tuition costs? Depending on your income and filing status, you can deduct up to $4,000 of college tuition and related fees. Also, you don't have to itemize your deductions to claim it. Not a bad deal.
However, not all tuition and fees are eligible for the deduction. Only certain tuition costs and fees qualify, so you should speak with a tax advisor to see if you can save a few thousand dollars this year.
The American Opportunity Credit has been extended through 2017. Each eligible student can qualify for a maximum credit of $2,500.
If you are tired of your current job and need a change of scenery, you can possibly deduct some expenses that pertain to job hunting. Examples include printing and mailing your resume, fees you pay to a job search agency, and even travel expenses if you are looking for work in another state.
There are rules, though. First, the job you're looking for must be in the same line of work as your previous job. Second, and perhaps the most important, job-hunting costs are considered miscellaneous expenses. You can only deduct those kinds of expenses if they exceed 2% of your adjusted gross income.
Other costs are associated with a job change (such as selling your home and moving costs) that may help your tax situation.
If you relocated for a new job last year, and you had to move at least 50 miles from your old home, you can deduct your moving expenses. Even better, you can take this deduction even if you don’t itemize.
Some expenses that qualify:
- Packing materials
- Hiring a moving company
- Truck rental
- Storage of your belongings within 30 days of your move
- Travel expenses for your family
- Mileage, if you drove your car
You also qualify if you moved to take your first job out of school. IRS Form 3903 will give you more information and help you calculate your expenses.
Lost Your Job
Getting laid off is scary, especially if you have a spouse and kids. It's important to know how to manage your money in that situation.
Unemployment compensation is taxable
A severance package counts as taxable income, including any money you get paid for accumulated vacation or sick time. Unlike wages, no tax is withheld from unemployment pay. So make sure to hold back about a quarter of that money for taxes.
Remember this: the sooner you are able to find another job, the more that severance money will look like a huge bonus. If you can get an income stream flowing again, you can use that severance to save or attack your debt. But, again, make sure to withhold some for taxes.
Selling a Home
Here is a great law. If you want to sell your home and have lived in it for 2 of the 5 years before the sale, then any profit you make on it (up to $250,000 for individuals and $500,000 for married filing jointly) is TAX-FREE!
There are 3 "tests" that you must pass in order to take advantage of this tax-free law. You must have owned the home for at least 2 of the 5 years before the sale, you must have used it for your primary residence for 2 of the 5, and you must not have excluded the $250,000/$500,000 gain on the sale of another home within 2 years prior to the sale of your current home.
There are other conditions that might allow you to qualify as well, such as a job change or a divorce.
Residential Energy Efficient Property Credit
You could receive a tax credit for up to 30% of the cost to purchase and install items like solar hot water heaters, solar electricity equipment and wind turbines in your home. The credit is available through 2016, and there is no cap on the credit for most improvements.
Homeowner Tax Deductions
During tax season, it helps to think of your home as one giant tax deduction. You can deduct:
- Property taxes.
- Mortgage interest on your primary residence and a secondary residence.
- Certain home improvements.
- Interest paid on a home-equity loan or home-equity line of credit.
- Premiums paid for private mortgage insurance (PMI), if you took out a first mortgage after 2006.