Tax Tips for Individuals

There are rules applied by the IRS for taxpayers who donate motor vehicles to charities. When the value of the car, truck, boat or plane you wish to donate is greater than $500, you can deduct the smaller of the vehicle’s FMV on the date the donation is made or the total proceeds received from the sale of the vehicle.

If you would prefer to claim a tax deduction for the donation of your vehicle on your tax return, the simplest way is to verify that the charitable entity or organization is qualified to receive your donation.

Taxpayers should only contribute their vehicle to an organization that’s eligible. If not, the donation will not be tax deductible. Taxpayers can search this convenient Exempt Organizations Select Check online tool to confirm whether an organization is eligible. Additionally, taxpayers can contact the Tax Exempt Government Entities Customer Service at 1-877-829-5500. Always include the full name of the charity and the address of its main office or headquarters. Churches or governmental bodies are not required to apply for this exemption to be eligible.

Contact Chicagoland CPAs today if you are thinking about donating a vehicle to charitable group.

You might be able to make deductions on some taxes on your federal return. According to the IRS, if you file Form 1040 and itemize deductions on Schedule A it decreases the amount of income that can be taxed. In fact, the following are the main categories of deductible taxes for non-businesses:

*Real estate tax
*General sales tax, or state and local income taxes
*Foreign income taxes
*Personal property taxes

Estimated taxes paid to state or local governments along with the prior year’s state or local income taxes can be deducted if they were paid during the tax year. If instead you are deducting sales taxes, you can deduct yearly expenses. You can also use optional tables provided by the IRS to find out your deduction amount. This means you won’t have to worry about holding on to receipts. Taxes paid for boats, trucks and cars may be added to the figure shown on the table but only up to what is paid at the general tax rate.

Taxpayers can simply indicate on Schedule A, Itemized Deductions, to show if their deduction is for sales or income tax.

Local, state or foreign taxes paid for real property are typically deductible. If some of your monthly mortgage payment is deposited to an escrow account and your lender occasionally pays your real estate taxes to local governments from this account, then only the amount paid during the year to taxing bodies are deductible. Lenders will usually forward a Form 1098, Mortgage Interest Statement to you at year’s end with this information.

Call Chicagoland CPAs and find out how we can save you money!

To claim a deduction for personal property taxes that you have paid, the tax must be based upon the property’s value only and applied on an annual basis. The annual fee to register your car, for instance, is considered a deductible tax. However, the deduction applies only to the amount of the fee that’s based upon the car’s value.

Many taxpayers do not benefit from available tax relief every year by not claiming the Earned Income Tax Credit (EITC). It is a federal tax credit for individuals who are employed but not earning a high income. Those who are eligible and claim the EITC can pay less federal tax, none at all, or perhaps even get a refund. Over 21 million taxpayers last year received around $37.5 billion in earned income tax credits. Though that seems like a high number, the IRS estimates that as many as 25 percent of those who could qualify for the EITC do not claim it. There are also many taxpayers who do claim this credit but do so by mistake.

The EITC is calculated using your earned income along with the number of eligible children in your home. Those eligibility requirements, according to the IRS, are the child’s age, residency and relationship to the taxpayer. It’s also important to file the tax return and claim the credit.

To find out if you may qualify for this tax credit that helps so many families, just use the online tool called the EITC Assistant. Call Chicagoland CPAs for more on this topic.

Can you qualify for one or more of these tax credits?

When it’s time to complete your income tax returns, it’s important to consider which tax credits you might be able to claim. Basically a dollar-to-dollar reduction to the amount of taxes owed, some credits are refundable. In some cases, taxes are reduced to an amount that results in a refund for the payer instead of an amount owed. Listed below are some of the credits taxpayers may be eligible for:

*Earned Income Tax Credit – A refundable tax credit that applies to low-income families or individuals. The qualifying factors are mainly your income and family size. If you claimed and qualify for it and the credit amount is more than what you owe, the welcome result is a tax refund. There is more information about the Earned Income Credit (EIC) at IRS Publication 596.

*Child Tax Credit – A credit with a maximum amount of $1,000 for each qualifying child. It can be claimed along with tax credits for child and dependent care expenses. For more information on the Child Tax Credit, see Pub. 972, Child Tax Credit.

*Credit for Child and Dependent Care Expenses – Applies to expenses for the care of children under age 13 that make it possible for the taxpayer to find and maintain employment. Also applies for expenses toward a disabled spouse or other dependent. The tax credit is limited to a percentage of these qualifying expenses. For more details see Publication 503.

*Adoption Credit – Adoptive parents may take a tax credit up to $13,190 for qualifying expenses paid for the adoption of a child that meets the criteria. To find out more, see Form 8839, Qualified Adoption Expenses.

*Credit for the Elderly and Disabled – A credit available for individual citizens or residents who are age 65 or older or are under age 65 and retired on total permanent disability. Income limitations apply. For more information, see Pub.524, Credit for the Elderly or the Disabled.

*Education Credits – There two education credits available: one of them is now called the American Opportunity Credit and was formerly known as the Hope Credit. The second is the Lifetime Learning Credit (LLC), which is available to those paying higher education costs. The American Opportunity Credit is for the expenses of the first four years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. The LLC is typically available for the expenses of post-secondary education. There is no limit on the number of years with respect to eligibility. Both of these credits cannot be claimed for one student in a single year. For additional information on tax benefits for education see Publication 970.

*Retirement Savings Contribution Credit – Individuals may be able to claim a credit on a portion of contributions made to qualifying retirement savings account. These can include contributions to a traditional IRA, a Roth IRA or even if you have taken a reduction in your salary. Other plans that may qualify here include SEP and SIMPLE savings plans. To be eligible, you have to be at least age 18 by the end of the year, but you cannot be a full-time student to be claimed as an exemption for another taxpayer. Adjusted gross income (AGI) must be below a specific amount in order to qualify. See chapter three in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) to learn more.

There are other credits available to eligible taxpayers that we’d be happy to tell you about. Just call Chicagoland CPAs to get started.

According to the provision of the act that defines individual shared responsibility, taxpayers and their family members are required to have qualifying health insurance, a coverage exemption, or submit a payment upon filing. If you and your dependents had health insurance coverage the prior year simply check the box on the form. The individual shared responsibility provision, which began in 2014, requires individuals to get qualifying health care coverage, which is known as minimum essential coverage. It must be obtained monthly, or paid when the federal income tax return.

The provision pertains to both adults and minors. Adults or married couples who claim a child or other individual as a dependent on federal income tax returns are required to submit the payment if the dependents doesn’t have coverage or an exemption.

If you must make an individual shared responsibility payment, use the worksheets found in the instructions to Form 8965, Health Coverage Exemptions, to calculate the amount due. The amount is reported on line 61 of Form 1040 in the Other Taxes section, and on the related lines on Form 1040A and 1040EZ. Make payments only for months you didn’t have coverage or a coverage exemption.

When getting ready to file your federal taxes, remember to include all of your contributions to charities. Donations can total up to a substantial tax deduction if you are a member of a flow-through business entity, or if on your personal taxes you itemize deductions on Form 1040, Schedule A.

To help your charitable contributions bring results on your tax return, follow these helpful guidelines:

Contributions to political organizations, candidates, specific individuals, the value of your time or services and the cost of raffles, bingo, or other games of chance cannot be deducted.

In order to be tax deductible, contributions must be made to qualified organizations.

Organizations can advise you of their eligibility and whether donations to them will be deductible. Taxpayers can also search the Exempt Organizations Select Check online tool, to confirm if an organization is qualified.

Potential donors can also call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Verify that the charity’s name and address are up-to-date before contributing.

Governmental bodies and religious groups such as churches or synagogues do not have to apply this exemption to eligible.

When you’re unable to send in your tax return by the standard April 15 filing deadline, you might be eligible for a six month extension. You’ll be able to submit your tax information to the IRS within the extra time, but will still have to pay all taxes past due. Interest is also due on all amounts still not paid after the deadline. Payments less than 90 percent of the total owed are subject to penalties. You’ll need to make an accurate estimate of taxes due if you request an extension. You can also submit a payment towards the balance due the IRS, but it’s not a requirement to get the extension.

If you’d like to request an extension automatically simply file Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return prior to April 15. You can also submit an extension payment electronically or send Form 4868 by postal mail to the IRS.

The computerized system will provide a confirmation number for you to verify the extension request has been accepted. Include this number on your copies of Form 4868 and maintain it with your tax records. Don’t mail the extension form to the IRS. Helping clients with extensions is one of our firm’s areas of expertise – call our offices for more specific information on filing an extension correctly.