This time period marks tax season in which millions of Americans will try to skirt the meddling hands of Uncle Sam. For guys like me, CPA’s with the responsibility to protect clients from the bureaucracy, this period consists of last-minute efforts to capture deductions, sleepless nights of combing through bank statements, and an overwhelming amount of questions with a desire for immediate answers. I might sound a little crazy, but all this chaos is enthralling, and I love it! I enjoy helping each person I possibly can, guiding them through the maze of loopholes that we can all take advantage of given the adequate knowledge. With that said, I reserve this post for the top 4 questions I have gotten thus far this year. These are questions that seem to be common amongst many of my clients, potential clients, and just those looking for some quick advice.
What Are Some of the Most Often Overlooked Credits and Deductions?
Gathering the many documents we need for filing taxes can get overwhelming. When things get, overwhelming stuff gets overlooked. We then fail to take advantage of the smallest of items that could potentially make a substantial difference in our tax liability or tax refund checks.
With that said, here is a list of some of the credits and deductions you should keep in the back of your mind:
- Job search expenses: including the cost of resumes’, placement agencies, and travel
- Self-employed health insurance
- Treatment for addictions
- Investment advisor fees
- Safety deposit box fees
- Union dues and trade publication subscriptions
- Personal property taxes
- Moving/medical expenses, including mileage deductible at 17 per mile
- Miles driven in service of charitable organizations, at a rate of 14 cents per mile
What are some key business deductions?
If you own a business that generates income, not understanding some of the key business deductions could be detrimental. Here is a list, although not all-inclusive, of some of the business deductions you should be thinking about:
- Business Meals
- Mileage – via vehicle and when traveling is business related
- Business Travel – travel for business purposes
- Home Office Deductions – make sure you include this if your place of business is your home
- Dues & Memberships
- Cell Phone – even if the phone is used for personal purposes as well, use a ratio to figure the business use percentage
- Legal Fees
- Equipment/Software – do not overlook software. Many businesses are predicated on running online so deduct those software expenses!
Will I be taxed on the money I made from selling my home?
Homeowners who bought very low and now that the market is great, are now able to sell their homes for well over what they initially purchased it for. Nothing like cashing in on that investment you made several years ago. When you make 20%-40% on the sale, there is no wonder this is one of the most common questions. So with that said, the tax code does provide relief in this area.
For someone realizing a gain on the sale of their home, if you lived in the home for 2 out of the last five years, then up to $250,000 of profit is tax-free. Yup! The IRS will not touch any of it. If you’re married, it’s even better. You get up to $500,000 in profit before its taxable. Another keynote here. The two years you live there don’t have to be consecutive; however, you can only take advantage of this exemption every two years. Therefore, you can’t live in two homes for two years and try to make the exception for selling both.
So if you’re selling your home anytime soon, make sure you meet those requirements and enjoy that tax-free money.
Is it better to file married or file jointly?
This has been one of the more interesting questions for me this year. I suppose a lot of us young folks are starting to get married but not wanting to co-mingle our finances. I also had a client mention that when it comes to paying student loans and you’re trying to lower your payments, it’s better to show your tax return separately as opposed to together because of the increased income. To both of these, I would say, PLEASE PAY CLOSE ATTENTION TO THE PASSAGE BELOW.
The tax code is written in a way to encourage certain actions of society. Deductions may be offered for particular industries or credits granted for buying an electric vehicle. The code encourages American citizens to be innovative business owners or real estate owners with swaths of land. The IRS also wants you to file “Married Filing Jointly” (further denoted by MFJ)! Within this filing status exist several advantages that far outweigh those for filing “Married Filing Separately” (further denoted by MFS).
Couples that file MFJ can take the most significant standard deduction each year, double what the individual standard deduction is. In the case of 2017, that’s $12,700 off the top of any income. Married couples also enjoy a double personal exemption deduction of $4,050 each from their Adjusted Gross Income (or AGI), the couples gross income minus specific deductions. These two deductions alone could save you THOUSANDS in taxes! Joint filers also enjoy being able to take advantage of such credits as the American Opportunity and Lifetime Learning Credits, Child and Dependent Care Tax Credit, and the Earned Income Tax Credit, all items that can potentially lead to refunds.
On the other hand, MFS prohibits you from taking all those credits I mentioned above, and you’re limited to half of the standard deductions and only one personal exemption. There goes those THOUSANDS! The biggest disadvantage to me about filing MFS is that you lose the student loan interest deduction and the tuition and fees deduction. Many of us have a fixed amount of student debt, and being able to deduct the interest each year is critical when trying to maximize that refund. I won’t address the whole marriage and commingling of finances thing. That’s none of my business. But, In the end, filing separately to lower monthly payments may not be worth it not to be able to deduct the interest on those debts.
This blurb is not all-inclusive of the advantages and disadvantages of these filing statuses, so if you have any additional questions feel free to contact me via 413capital.com.
So that’s my top 4 thus far. I’m sure this is bound to change, so I encourage you to follow me @DezzTheCPA on all social media and check out my firm @413Capital as we will consistently provide updates and blurbs on everything taxes and finances!
Have more questions? Let’s connect