Protecting Americans from Tax Hikes Act of 2015

Photographer: Alex Beadon

Congress has reached a bipartisan agreement on tax extenders, which has been named “Protecting Americans from Tax Hikes Act of 2015”. Much to everyone’s surprise, some were made permanent while others were only extended for a period of time. Congress also modified several provisions and added new ones to reduce tax fraud. Here is a look at some of the key provisions included in the legislation that pertain to individuals, small businesses, and certain energy-related provisions: 

INDIVIDUAL PROVISIONS: 

Child Credit – This credit was made permanent; it provides a $1,000 credit for each dependent child who is under the age of 17 at year’s end, who lived with the taxpayer for over half of the year and who meets the relationship test. The credit phases out for higher-income taxpayers, and a portion of the credit is refundable for lower-income taxpayers. The changes also include program integrity provisions that prohibit an individual from retroactively claiming the child credit by amending a return (or filing an original return if he or she failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN – generally a Social Security number). After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years. 

American Opportunity Credit (AOTC) – This credit, which was due to expire after 2017, has been made permanent. This is a tax credit equal to 40% of the cost of tuition and qualifying expenses for higher education, with a maximum credit of $2,500. The credit applies to 100% of the first $2,000 and 25% of the next $2,000 of qualifying expenses. The credit offsets any tax liability, and 40% of the credit is refundable even if the taxpayer does not have any tax liability. It also phases out between $160,000 and $180,000 for married taxpayers filing jointly and between $80,000 and $90,000 for others – except for married taxpayers filing separately, who get no credit. 

After 2015, when a taxpayer improperly claims the credit, the legislation includes a disallowance period when no credit is allowed. For fraud, the disallowance period is 10 years, and for reckless or intentional disregard of rules and regulations, the disallowance period is 2 years. 

A provision was added that prohibits an individual from retroactively claiming the AOTC by amending a return or filing a late original return for any prior year when the individual or a student for whom the credit is claimed did not have an ITIN (generally a Social Security number). 

Earned Income Tax Credit (EITC) – The EITC is a refundable credit allowed to certain low-income workers who have W-2 wages and self-employed income. The credit is larger for taxpayers with children. The credit for taxpayers with children is based upon the number of children; those with three or more children receive the highest credit – as much as $6,269 in 2015. The higher credit for three or more children, which was a temporary provision that was set to expire after 2017, has been made permanent. 

The changes also include added program integrity provisions that prohibit an individual from retroactively claiming the AOTC by amending a return (or filing an original return if the individual failed to file) for any prior year in which the individual for whom the credit is claimed did not have an ITIN (generally a Social Security number). The changes also reduced the marriage penalty by increasing the income phase-out for those filing jointly. 

Teachers’ $250 Above-the-Line Deduction – This provision, which was available from 2002 through 2014, allows teachers and other eligible educators (levels kindergarten through grade 12) to take an above-the-line deduction of up to $250 for unreimbursed expenses incurred as part of their educational work. This deduction has been made permanent and modified by adjusting the $250 for inflation in years after 2015. In addition, professional development expenses were added to the qualified expenses allowed as part of the $250 deduction. 

Transit Pass & Parking Fringe Benefit Parity – From 2010 through 2014, the monthly exclusion amount for employer-paid transit passes and qualified parking were temporarily the same. The parity of these two fringe benefits has been made permanent. Thus, for 2015 they will both be $250.  

Optional Deduction of State and Local General Sales Taxes – Since 2004, taxpayers who itemized their deductions have had the option to deduct the Larger of (1) state and local income tax paid during the year, or (2) state and local sales tax paid during the year. This provision, which had been previously extended through 2014, provides the greatest benefit to those taxpayers who reside in a state that has no income tax (which include Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming). This election has been made permanent. 

Above-the-Line Deduction for Qualified Tuition and Related Expenses – This above-the-line deduction for qualified higher education tuition and related expenses had been available from 2002 through 2014. The deduction includes adjusted gross income (AGI) limitations; it is not allowed for joint filers with an AGI of $160,000 or more ($85,000 for other filing statuses). This deduction has been retroactively extended through 2016. 

Tax-Free IRA Distributions For Charitable Purposes – This provision was temporarily added in 2004 and originally expired in 2011; it was not extended until late in the year during the years 2012, 2013 and 2014, thus limiting its application in those three years. The provision allows taxpayers age 70.5 and over to directly transfer (not rolled over) funds from their IRA accounts to a qualified charity. The distribution is not taxable, but it does count toward the individuals’ required minimum distribution (RMD) for the year. The maximum allowable transfer is $100,000 per year. No charitable deduction is allowed, as the distribution is not taxable. This provision has been made permanent; it provides four potential tax advantages: 

  1. The distribution is not included in income, thus lowering the taxpayer’s AGI, which in turn helps to avoid various AGI phase-outs and limitations. 

  2. Keeping the AGI lower also helps to minimize the amount of Social Security income that is subject to tax for some taxpayers. 

  3. Taxpayers using the standard deduction cannot get a charitable deduction, but they are essentially deducting the charitable deduction from their gross income when making contributions this way. 

  4. The transferred distribution counts towards the taxpayer’s RMD for the year. 

Discharge of Qualified Principal Residence Indebtedness – When an individual loses his or her home to foreclosure, abandonment or short sale or has a portion of his or her loan forgiven under the HAMP mortgage reduction plan, that person generally will end up with cancellation of debt (COD) income. COD income is taxable unless the taxpayer can exclude it. A taxpayer can exclude the COD income in the extent that he or she is insolvent (with debts exceeding assets immediately before the event occurs) using the insolvency exclusion.

Due to the housing market crash, in 2007, Congress added the qualified principal residence COD exclusion, which allowed taxpayers to exclude COD income to the extent that it was discharged acquisition debt. Acquisition debt is debt originally incurred to acquire a home or substantially improve it – not debt used for other purposes, which is called equity debt. However, equity debt is deemed to be discharged first, thus limiting the exclusion when both equity and acquisition debt are involved in the transaction. 

The qualified principal residence COD exclusion had been previously extended but had expired at the end of 2014. This exclusion has been retroactively extended through 2016 (a two-year extension). 

Mortgage Insurance Premiums – For tax years 2007 through 2014, taxpayers could deduct (as an itemized deduction) the cost of premiums for qualified mortgage insurance on a qualified personal residence (first or second home). To be deductible, the premiums must have been related to acquisition debt incurred after Dec. 31, 2006. However, this deduction phases out for higher-income taxpayers (generally those whose AGI exceeds $100,000). This provision, which had expired after 2014, has been retroactively extended through 2016, a two-year extension.

BUSINESS PROVISIONS: 

Research Credit – Tax law provides a tax credit of up to 20% of qualified expenditures for businesses that develop, design or improve products, processes, techniques, formulas or software (and similar activities). The credit has been available off and on since 1981 without being made permanent. It had been extended several times but had expired at the end of 2014. This credit has been retroactively made permanent. In addition, it is not a tax preference for small businesses. 

100% Exclusion of Gain – Certain Small Business Stock – Previously, for stock issued after September 27, 2010, and before January 1, 2015, non-corporate taxpayers could exclude 100% of any gain realized on the sale or exchange of “qualified small business stock” held for more than 5 years. In addition, there was no alternative minimum tax (AMT) preference when the exclusion percentage was 100%. Generally, the term “qualified small business” means any domestic C corporation with assets of $50 million or less. This provision has been made permanent. 

Differential Wage Payment Credit – Through 2014, eligible small business employers – generally those that have an average of fewer than 50 employees and that pay a individual called into active duty military service all or part of the wages that they would have otherwise received from the employer – can claim a credit. This differential wage payment credit is equal to 20% of up to $20,000 of differential pay made to an employee during the tax year. This credit has been retroactively made permanent; for years after 2015, the credit will apply to any size employer.

Work Opportunity Tax Credit (WOTC) – Through 2014, employers could elect to claim a WOTC for up to 40% of employees’ first-year wages for hiring workers from targeted groups – not exceeding wages of $6,000 (a maximum credit of $2,400). First-year wages are wages paid during the tax year for work performed during the one-year period beginning on the date when the employee begins work for the employer. This credit has been retroactively extended for five years through 2019; it applies to veterans and non-veterans and adds qualified long-term unemployment recipients to the list of targeted groups for years after 2015. 

Section 179 Election – Since 2003, the Section 179 election has been temporarily increased from its statutory limit of $25,000 to between $100,000 and $500,000. Since 2010, the expense cap has been $500,000 (or $250,000 on a married-filing-separate tax return), and the investment limit has been $2 million. However, the last extension expired after 2014; without an extension, the cap would have returned to the statutory $25,000 limit in 2015. The statutory expensing limit of $500,000 and the $2 million investment limit have both been made permanent.

The application of the Section 179 election to “off-the-shelf” computer software, qualified leasehold improvements, qualified restaurant property and qualified retail improvements has also been made permanent. 

Leasehold and Retail Improvements and Restaurant Property – The class life for qualified leasehold and retail Improvements and restaurant property had been temporarily included in the 15-year depreciation class life, as opposed to the 31-year category. Qualified leasehold and retail Improvements and restaurant property have been retroactively and permanently included in the 15-year MACRS class life. 

Bonus Depreciation – As a means of stimulating the economy, a 50 percent bonus depreciation was temporarily implemented in 2008 and subsequently extended through 2014. For the period between September 8, 2010, and before January 1, 2012, it was even boosted to 100 percent. Bonus depreciation applies to personal tangible property placed in service during the year for which the original use began with the taxpayer. 

The 50% bonus depreciation has been extended for 2 years (through 2016) for property placed in service before January 1, 2017. This generally applies to property with a class life of 20 years or less, to qualified leasehold improvements and to certain plants bearing fruits and nuts that are planted or grafted before January 1, 2020. 

Enhanced First – Year Depreciation for Autos and Trucks – This is the so-called “luxury limit” on the deprecation deduction of passenger automobiles and light trucks used for business. For such vehicles placed in service in 2015, the limits are $3,160 and $3,460, respectively. In the past, the bonus depreciation had increased the first-year luxury limits by $8,000. Under the new law, the bonus depreciation applicable to luxury vehicles will be phased out through 2019. Thus, the luxury auto rates will be increased by the following bonus depreciation rates: $8,000 for 2015 through 2017, $6,000 for 2018 and $4,800 for 2019. 

ENERGY PROVISIONS: 

Residential Energy (Efficient) Property Credit – From 2006 through 2014, a nonrefundable credit had been available for qualified improvements to make the taxpayer’s existing primary home more energy efficient. Qualified improvements generally included insulation, storm windows and doors certain types of energy-efficient roofing materials, and energy-efficient air conditioning and hot-water systems. The credit was equal to 10% of the improvement’s cost (not including installation), with a lifetime credit of $500. The credit has been retroactively extended through 2016 (two years). 

Credit for Fuel-Cell Vehicles – Through 2014, a taxpayer could claim a credit for vehicles fueled by chemically combining oxygen with hydrogen to create electricity. Generally, the credit was $4,000 for vehicles weighing 8,500 pounds or less (and up to $40,000 for heavier vehicles, depending on their weight). An additional $1,000 to $4,000 credit was available for cars and light trucks to the extent that their fuel economy exceeded the 2002 base fuel economy set forth in the Internal Revenue Code. This credit has been retroactively extended for two years through 2016. 

If you have questions related to these or other, less commonly encountered provisions of the new law (Protecting Americans from Tax Hikes Act of 2015), please send us an email. Benefiting from some of these provisions for 2015 will require taking action before year’s end.

Tax Free Weekends 2014

BACK TO SCHOOL

It’s that time of year again to start that back-to-school shopping spree.  Back-to-school shopping is one of the biggest shopping seasons for most retail stores. Some states like Maryland and Florida just to name a few like to help their fellow residents out by giving them what they call a tax-free holiday weekend.  There are 17 states that are participating in this tax free holiday weekend, which means you won’t have to pay sales tax on certain items purchased. For the other states that choose not to participate, I would assume that their thought on this tax free holiday weekend didn’t sound to economically appealing and one state this year after years of participating has decided to join the club.

Unfortunately North Carolina has repealed its sales tax holiday this year.  Gov. Pat McCrory signed a tax reform plan into law on July 23, 2013 that eliminates the sales tax holiday for 2014. But having 17 other states that are participating in this tax free holiday gives you the option to cross your state borders and go shopping. So there is no need to worry.  Also, the Massachusetts House and Senate lawmakers have agreed to give Massachusetts shoppers another sales tax holiday this summer but have not decided on a date. It could be August 9 – 10 or August 16 – 17 keep updated by visiting their state website located on the table below.

Do you know when your state’s 2014 tax-free weekend starts? Well below you’ll find the information needed to prepare your day for shopping.  There are links to each states website to give you more info if needed.  Do your research on layaways, online shopping and using discount coupons in combination with this tax free holiday weekend.

 

Happy Shopping!

Debbie Thomas, EA NRB

State Dates Sales Tax Rate Tax-Free Items
Alabama August 1-3 4% Clothing: Including coats, diapers, and shoes. $100 or less per article of clothing – no cosmetics, handbags, dance shoes, or cleated or spiked athletic shoes.
Computers: Including computer packages, PDAs, software, printers, and print cartridges. Single purchase of $750 or less – no cell phones or video games.
School and Art Supplies: (Based on school lists) Backpacks, lunchboxes, and calculators. $50 or less per item.
Textbooks: (Based on school lists) Sale price between $30 and $50.
Other Books: Up to $30.
http://www.revenue.alabama.gov/
Arkansas August 2-3 6% Clothing: Including diapers, coats, shoes, costumes, and wedding apparel. Less than $100 per item.
Accessories: Including handbags, briefcases, wigs, jewelry, and non-prescription sunglasses. Less than $50 per item.
School and Art Supplies: (Based on school lists) Including backpacks, lunchboxes, and calculators. No dollar limit given.
Reference Supplies: Reference books, maps, globes, textbooks, and workbooks. No dollar limit given.
http://www.dfa.arkansas.gov/
Connecticut August 17-23 6.35% Clothing and Footwear: Under $300 per item – no athletic uniforms or protective gear.
http://www.ct.gov/drs/
Florida August 1-3 6% Clothing and Shoes: Including diapers, backpacks, coats, costumes, sports uniforms, and cleated or spiked shoes. Up to $75 per item.
School Supplies: Including calculators and lunch boxes. Up to $15 per item.
http://dor.myflorida.com/dor/
Georgia August 1-2 4% Clothing and Footwear: Including diapers, athletic clothing, baby clothes, sweaters, uniforms, footwear of all types, and formal wear. Single purchase of $100 or less – no clothing accessories (except belts), handbags, briefcases, cosmetics, and life jackets.
School Supplies: Including calculators, paper, organizers, notebooks, glue, folders, pens, pencils, dictionaries, loose-leaf binders, and children’s books. Single purchase of $20 or less – no janitorial supplies, medical supplies, envelopes, and books (besides children’s books, thesauruses, and dictionaries).
Computers and Software: Including personal computers, book readers, laptops, tablets, data storage devices, monitors, printers, and non-recreational software. Single purchase of $1,000 or less – no batteries, cases, game consoles, projectors, surge protectors, or games.
https://etax.dor.ga.gov/
 

Iowa

 

August 1-2

 

6%

 

Clothing and Footwear: Including work and school uniforms, diapers, and coats. Under $100 per item – no backpacks, book bags, handbags, athletic uniforms, wallets, watches, or shoes with spikes or cleats.

http://www.iowaccess.org/tax/

Louisiana August 1-2 4% Tangible Personal Property (non-business use): Just about everything, including clothing, computers, furniture, school supplies, and more. The first $2,500 per item is tax-free, with the exception of vehicles and restaurant meals (including to-go orders).
http://www.revenue.louisiana.gov/
Maryland August 10-16 6% Clothing and Footwear: Including coats, diapers, and work and school uniforms. Items priced at $100 or less – no handbags, backpacks, jewelry, or watches.
http://www.marylandtaxes.com/
Massachusetts

August 9-10 or

August 16-17

6.25%
Almost Anything: Items up to $2,500 or less – no tobacco, gas or meals. A date has not yet been decided as of July 6, 2014.
http://www.mass.gov/dor/
Mississippi July 25-26 7% Clothing and Shoes: Includes diapers, coats, and uniforms. Up to $100 per item. Excludes jewelry, purses, luggage, wallets, backpacks, skates, and skis.
http://www.dor.ms.gov/
Missouri August 1-3 4.225% Clothing and Footwear: Including coats, diapers, shoes, and school uniforms. Up to $100 per item – no watches, handbags, or ties.
School Supplies: Including backpacks, art supplies, handheld calculators, and globes. Up to $50 per purchase – no headphones, sporting equipment, or furniture.
Computers and Software: Including desktop systems, laptops, and peripherals. Up to $3,500 for computers and peripherals; up to $350 for software.
http://dor.mo.gov/
New Mexico August 1-3 5.125% Clothing and Footwear: Including diapers, bridal wear, and school and work uniforms. Less than $100 per item – no athletic uniforms or protective gear, costumes, handbags, or briefcases.
School Supplies: Including art supplies, folders, and binders. Less than $30 per item; less than $200 per item for calculators and less than $100 per item for school backpacks.
Computers: Including tablets, printer paper, ink cartridges, computer speakers, and e-readers that include computing functions like word processing or spreadsheet programs. Less than $1,000 for computers and less than $500 for peripherals and equipment – no scanners, zip drives, or software that is not bundled with a qualifying computer purchase.
http://www.tax.newmexico.gov
 

Oklahoma

 

 

 

August 1-3

 

 

 

4.5%

 

 

Clothing and Shoes: Including clothing or footwear meant to be worn on the body. Less than $100 per item – no accessories, athletic footwear, or protective gear.

http://www.tax.ok.gov/

 

South Carolina

 

 

 

August 1-3

 

 

 

6%

Clothing and Accessories: Including costumes, diapers, handbags, hats, shoes, swimwear, skates, and dance or athletic shoes. No dollar limit given – no rented items, cosmetics, eyewear, or jewelry.
School Supplies: Including calculators, book bags, books, and lunchboxes. No dollar limit given.
Computers, Printers, and Software: Including printer supplies. No dollar limit given – no cell phones, cameras, e-readers, or MP3 players.
Home Linens: Including sheets, towels, bath mats, pillows, and blankets. No dollar limit given – no curtains, furniture, housewares, or table cloths.
http://www.sctax.org/
Tennessee August 1-3 7% Clothing and Footwear: Including coats, school uniforms, shoes, and hats. $100 or less per item – no bags, jewelry, or sports gear.
School Supplies: Including art supplies, backpacks, lunch boxes, and calculators. $100 or less per item – no reference books or printer supplies.
Computers: Including tablets, laptops, and peripherals and software bundled with computers. $1,500 or less per item – no separately sold peripherals, software, printers, PDAs, or storage media.
http://tn.gov/revenue/
Texas August 8-10 6.25% Clothing, Footwear, and Backpacks: Including diapers, work clothes and uniforms, coats, and swimwear. Less than $100 per item. Backpacks for use by elementary and secondary students only – no handbags, helmets, or protective sports gear.
School Supplies: Including book bags, lunch boxes, and calculators. Less than $100 per item.
http://www.window.state.tx.us/
Virginia August 1-3 4% Clothing and Footwear: Including coats and rain gear, school uniforms, diapers, and costumes. $100 or less per item – no sports equipment or protective gear, handbags, or jewelry.
School Supplies: Including art supplies, dictionaries and thesauruses, calculators, book bags, and musical instruments. $20 or less per item – no PDAs, printers, or digital storage media.
http://www.tax.virginia.gov/

Visit our website at www.dmtbookkeeping.com

Don’t Judge A Book By Its Cover

whos

Where’s the best place to get your taxes done? 
That is the question.

Well let me give you something to think about when deciding.  It all started when I moved from my home state of WV to the good ole state of Maryland.  I had just received my degree in Accounting and IT and was ready to look for a new career.  I had already been working for the last ten years as a librarian where I so envied the VITA volunteers who came every year to provide free tax services to the community and I so wanted to one day be involved with that.  If you don’t know what VITA is, well it stands for Volunteer Income Tax Assistance which is a program regulated by the IRS to provide free tax assistance to taxpayers.  Anyways, before moving from WV I applied for a job at a CPA firm and after a week I got a call about the position stating that it had already been filled, boy did I start to worry that I would never find a job opportunity like that again being how we lived in a small town.  I was really hoping to land something before I actually moved to Maryland.  If you’re wondering why I was moving well it’s because my fiancé had been offered a job there so I decided I was going to move myself and my three boys there to start a new life.  Sounds exciting doesn’t it.  Well it was!

So there I was getting ready to take that last drive to Maryland where I thought I’d have a job but, NOTHING.  So about a month later I received a call from the CPA firm that I had applied for and lo and behold I got the job.  So there I was working for a CPA firm learning so much.  I quickly learned that what you are taught in college does not prepare you for what you will actually be doing.  I mean I was doing payroll, bookkeeping, financial statements for home building contractors, doctors, apartment buildings, you name it I did it. All this prepared me for the task of preparing taxes for corporations, partnerships and individuals. I was calculating depreciation and loan interest as well.  So I thought maybe I should expand my skills and go to an H&R Block class and maybe prepare taxes there.  I mean they are well-known so they must be good at what they do.  I told my boss what I was doing and he kind of giggled under his breath.  I went back into my office wondering why he giggled as if I was joking about taking the tax class at H&R Block and maybe working there for some more experience.

Ok, well here is where I discovered why he giggled.  As I walk into the class I found a table way in the back and took a seat.  Looking around at the few people who were already sitting at the other tables I wondered what their stories were.  Then in walks the instructor (or should I say a “wanna” be comedian) and class is about to begin until a few more people start rushing in.  Ok, finally he’s ready to explain the program and go over everything.  I was so excited until it was that time for everyone to introduce themselves.  Here we go, the start of the introductions and it seems everyone in the room was interested in the same thing, a part-time job to make a little extra money.  Let me just tell you after the whole “getting to know you” thing I found out that out of the 15 people in the class I was the only person with a degree and/or any type of background in accounting, taxes or business.  There were housekeepers, store clerks, restaurant cooks, cashiers … you get where I’m going.  So now I’m wondering how does an H&R Block tax preparer get qualified.  Well come to find out after taking the 6 week basic tax course all you need to do is take a test and pass with a 80%.  The instructor told us that the tax software that is used is fools proof – meaning that any idiot should be able to put numbers into the program and unless an error comes up, you are good.  They are not required to ask for any additional info from the client or anything.  So I’m thinking this is easy money to be earned.  This brings me to my next “Say What” moment.  How much do we get paid?  At that time it was $7.25.  Yes folks, $7.25 – hold up. They charge clients outrageous prices to get a simple tax return prepared and the preparer gets $7.25/hr.  It’s called overhead ya’ll.  I forgot to tell you earlier that you also pay for your tax training class as well.

No more was I wondering why my boss giggled when I told him my plans on furthering my learning.  As I walked into work after completing my course at H&R Block he asked me how it was going and I told him that it wasn’t for me and I don’t think I will be going back and then I giggled.

So fast forward to where I am today an Enrolled Agent and a business owner a CE course author and of course I finally got to volunteer for VITA as an Advanced Certified preparer.  I can say that when I hear people say that they are going to one of those tax franchises to have their taxes prepared I kind of cringe.  Not because of the experience I had but because they aren’t educated enough to know what to look for in a preparer.  It’s not necessarily the place you’re going to get your taxes done but who is preparing your taxes.  Don’t get me wrong there are some good tax preparers working in these offices – as I could have been one, but you also have some that just do the basic data entry.  My advice to you is to ask your preparer questions about your return or make sure they know your situation so that you can get the best tax service for your money and see if they will be around after the current season to prepare you for the next tax season in case you have any questions.

To help you with some of the questions or concerns just follow my blog and social media sites.  The info posted to these sites will guide you when it comes to making sure you’re getting your taxes prepared correctly.  Remember these are big corporations just wanting to get your money so it’s your job to make sure you’re not getting taken advantage of.  In the end you are responsible for your tax return no matter who prepares it.

businesswoman

 

I hope sharing this story with you gave you a little insight on deciding what to do when choosing the right place to get your taxes prepared. What are some of your experiences and what are your concerns, please leave a comment and share.

Have a wonderful day!

Debbie Thomas, EA

Claim Your Sweetheart on Your Taxes

Image

Most of you don’t know that you can actually claim your wonderful significant other on your tax return as a dependent.

Yes, you heard me right.  You can claim that broke boyfriend or girlfriend on your taxes.  I mean didn’t reading those first two sentences put a smile on your face after thinking about how you come home every day from work seeing that “soul mate” sleeping on the couch with “your” empty bag of chips laying on the floor beside them.  Instead of seeing that list of potential jobs written down on the pad of paper you had placed on the coffee table before you left out to go to work that morning (hint, hint).  You bust your butt every day to provide a comfortable place for the both of you to live and eat, don’t you think you deserve a break.  Don’t get me wrong there are those of you who have wonderful significant others who you adore and they are trying so hard to find a job while helping you out by cleaning the house and having dinner ready when you get home – Now that’s a Sweetheart!  Both of these scenarios are very common and both can give you a little tax relief at tax time.

Unfortunately a lot of taxpayers are missing out on this opportunity to claim your boyfriend or girlfriend on your tax return because you do not know a lot about the tax laws or because you go to one of those “tax franchises” that get you in and out with their basic training. I had posted a link on our FB Page stating “Ten Reasons Why You Still Need A Tax Pro” which this would be a good reason to use one.  Check out the info graphic from SmartCenter on the article.

Anyways, back to the subject of taking an exemption for the love of your life.  A federal exemption is earnings that get subtracted from a taxpayer’s adjusted gross income (AGI). They are often applied when claiming children or qualifying relatives as dependents.  Each year the exemptions increase; for 2013 it was $3,900 and now for the coming tax year 2014 it will be $3,950.

There are necessary criteria in order to be able to claim a boyfriend or a girlfriend on your taxes and you must ensure you take precautions when doing so.  Make sure you have documents that show proof of your financial support like receipts or bank statements showing those items.  If you don’t have proof of residency you may want to get a notarized letter from your landlord or neighbor, but if the person has mail or other proof of residency then that will work as well.

The Internal Revenue Service (IRS) have tests that needs to be met before you are able to claim the significant other on your return.

  • Support Test – You provided more than half of his/her support
  • Relationship Test – He/she must have lived with you throughout the entire year as a member of the household
  • Non-Qualifying Child Test – She/he cannot be a qualifying child
  • Income Test – The significant other (boyfriend/girlfriend) cannot have made more than $3,900 (2013), $3,950 (2014)

Here are some other facts to consider:

  • You cannot be claimed as a dependent by anyone else
  • The person must be a U.S. citizen
  • Your relationship cannot violate local laws
  • Both of you cannot not file taxes jointly

I hope this information was helpful and I would advise you to speak to your tax pro for guidance to make sure you get the most out of your tax filing year.  Feel free to leave a comment or email me at debbie@dmtbookkeeping.com for any further questions or comments.  Also, don’t forget to check out our website at www.dmtbookkeeping.com.

Have a wonderful day!

Debbie Thomas, EA

It’s Spring – Let’s Get Organized!

SPRING CLEANING

Are you ready?  Well then let’s get started!

I hope you’re energized and ready to start clearing out all of those old documents that you have accumulated over the years. Putting your financial matters in a nice organized manner will give you peace of mind.  Did you not feel good when you finally finished  your “household” spring cleaning … everything now is where it belongs, the smell of bleach and lemon filling the air of the once cluttered rooms and that sense of relaxation after relieving that big inhale.   Now picture that same feeling (minus the smell of bleach and lemon) when it comes to getting your paper work in order.  No more asking yourself, “where is that form, I just had it the other day,” or misplacing your child’s field trip form that was supposed to have been signed a week ago.  On a serious note though folks, let’s just say you get audited – which means you’re going to have to pull out your tax returns along with all the information that was used to prepare that return – well do you know where it is?   Exactly.   Wouldn’t you feel a little relieved knowing that if anything like that ever happened that you would be more than ready?   Also, with the New Year and the start of Spring you may want to consider getting your finances together maybe start a wealth planning program or just get yourself on a budget.  With your paperwork in order it will make the process a whole lot easier.

Now, no one said this is going to be easy but having a checklist and a guide can take a lot of pressure off of having to do it yourself. Think of it as having your own personal assistant.  Now just like starting a business you have to start with a business plan.  You have to know where to start by knowing what you will need to make this process successful.  So to start off, below is a list of things you will need.  How cool is that!!

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I suggest that you take 4 days to do this 4 step process.  But if you think you can get it done in one day go for it.   OK, here we go!

Step 1 – Gather ALL of your documents – (including unopened mail, receipts, bills, etc…).

Step 2 – Set up a filing system –  click here for a list of folder names that you can choose from depending on what you have.  This is where the labels come in handy.  Start writing the names on the tabs so you can later put them on the file folders or if you are going to scan just check mark the the folder tab names on the list so you can later entered them into your computer program.

Step 3 –  Separate – Now it’s time to get your posted notes out and label them with the following:  (1.)  File/Scan  (2.)  Bills To Pay  (3.)  Review  (4.)  Shred.  Spread the posted notes out and start separating your paperwork into the 4 piles.   If you do not know what papers to keep click here for the records retention schedule

Step 4 – File/Scan – It’s time to grab those labels (tabs) you previous made and start putting them on the filing folders (or start creating digital folders with the names you checked on the list into your computer program).  Once that is complete start filing/scanning.  Grab the papers in your “file/scan” stack and start separating them into the appropriate tabbed folders or start scanning them into the labeled digital folders in your computer program.   Next, grab your “bills to pay”  stack and put those in the “Bills to Pay” folder.   Now grab your “review”  stack and put them in the “Review” folder.     After you’ve put the documents in the correct folders it’s time to file them away into a file box or filing cabinet.  If you scanned your documents you can now  save the files onto your flash drive.   Finally, we come to the best part, the “SHRED” pile.  No need to explain that one but I’m going to: Shred with your shredder or burn in your fire pit whichever works best for you.  Just don’t throw them in the trash without being shredded (the trash bag is only to be used for the papers already shredded).   DON’T BE A VICTIM OF IDENTITY THEFT.

OK, you did it!  [High Five] Now don’t you feel GOOD!  I’m so happy for you.  This is the first step of getting your finances in order.

Well it’s been great sharing this information with you.  Until next time relax and have a wonderful day!

Debbie