Tag Archives: tax

Here are the Rules for Claiming the Child Tax Credit

If you are the parents of children under the age of 17, you may qualify for additional credits at tax time. If you have qualifying children, you may be eligible to claim the Child Tax Credit. This credit is a maximum of $1,000 per child. Your income is a determining factor as to whether you can claim the credit. The income thresholds became a permanent qualification requirement when the American Taxpayer Relief Act of 2012 was passed.Getting refund from the income tax return isolated on blue

Tax credits reduce your tax liability to the IRS. Credits reduce taxes owed dollar-for-dollar. This differs from deductions as deductions only reduce taxable income amounts. The credit may only be claimed up to the amount of tax that you owe. With the maximum credit per qualifying child being $1,000, if your owed tax is only $533, as an example, then your credit would be reduced to $533.

There is, however, a way to receive an Additional Child Tax Credit where you can receive the additional funds in the form of a tax refund. To determine if you qualify for the Child Tax Credit or Additional Child Tax Credit, you must qualify under all seven qualifying tests.

Those seven tests are:

  1. Age Test – Children must be under age 17 at the end of a tax year, meaning they must still be age 16 or younger on December 31.
  2. Relationship Test – Qualifying children to be claimed must be related to you by either birth, marriage, an adoption, grandchild, or foster child situation. Qualifying children can also be descendants of your immediate family members, including nieces and nephews.
  3. Support Test – A qualifying child cannot provide more than his or her half of their own financial support in a given tax year.
  4. Dependent Test – Qualifying children must be claimable as dependent on your tax return.
  5. Joint Return Test – Married children are not permitted to file joint returns with spouses if filing jointly simply to claim tax refunds.
  6. Citizenship Test – To qualify, children must be a U.S. citizen. Other qualifying statuses are U.S. resident alien status or U.S. national status. IRS Publication 519 provides additional information regarding tax guidelines for aliens.
  7. Residence Test – Children living under your roof for at least 183 nights, more than 50-percent of the year, qualify. Children that are born in or pass away in a tax year count for an entire year of residency.

A couple of loopholes exist with the residence test requirement. Special circumstances are taken into consideration. These circumstances include school residency requirements, planned vacations, medical illnesses, military service, kidnapping, juvenile incarceration, or parental business-related reasons. When one of these circumstances is in question, the time away counts as time that the child lived with you.

Limitations and Restrictions

The way you and your spouse choose to file can have an effect on your ability to take any Child Tax Credits as it can reduce or completely eliminate the credit. Modified gross incomes (MGI) cannot be more than $110,000 for couples married filing jointly. If you are married filing separately, individually reported income cannot exceed $55,000. The threshold for singles and those filing head of household is $75,000.

If you file your return using a paper return, you will complete IRS Form 8812 in addition to your regular tax return if you qualify for either a Child Tax Credit or Additional Child Tax Credit. You can calculate your child tax credit at TurboTax.


Home Improvement and Energy Tax Credits

Any home improvements go towards your cost basis when it’s time to sell your home. Home improvements are considered anything you’ve done to your home such as adding energy efficient appliances, a beautiful wooden fence in the backyard, landscaping, or a new room.

These expenses cannot be deducted at that time. Keep all your receipts and paperwork to use once you are ready to sell. The IRS can and does switch things up. Many profits from home sales are tax-free, but they can come after you and demand a part of the sale profits.

Energy Efficient Tax Credit

Congress passes laws every once-in-a-while to help Americans save the planet. These are typically energy efficient tax credits where homeowners receive credit for making their home more energy efficient. The tax credit helps to offset these expenses. Two credits include the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit.

Some examples of what you can do to earn these credits include:

  • Solar powered water heaters
  • Exterior doors
  • Skylights
  • Particular roofing materials
  • Central air conditioning systems
  • Electric heat pumps

You cannot just make your entire home energy efficient, installing whatever you want, and expect full credit for everything you’ve done. The cost of installing these home improvements is not to be counted as part of your credit.

Some have a lifetime limit of $500. If you installed energy efficient windows, you are only allowed a credit of $200. As of today, there is a 30-percent credit available for the cost of solar, geothermal and wind energy generating systems. These credits must be filed using Form 5695 – Residential Energy Credit.

Tax-Free Profit on Sale

Homeowners have another benefit of owning real estate instead of just having a peace of mind. You can also shelter some profit if particular criteria are met. You could shelter up to $250,000 of profit tax-free if a single person had lived in the home as their primary residence for two of the five years before they sold the home.

Those married filing jointly can shelter up to $500,000 but have two criteria to be met.

  • One of the spouses had to have owned the home as their primary home for two of the five years before they sold the home.
  • Both spouses had to have lived in the home as their primary residence for two of the five years before they sold the home.

Please note, that in all of the above situations, if you sold the home for a loss, you can’t deduct it.

You can use these exclusions each time you sell a home you’ve lived in for two of the five years before you sell it. However, any gains over the limits of $250,000/$500,000, must be reported as a capital gain on Schedule D.

Wrap Up of Tax Breaks for Buying a Home

Keep in mind that there are many homeowner tax deductions you may qualify for. Your tax preparer can give you more solid advice, so speak to them about home improvement credits available to you.

Private Mortgage Insurance Premiums

Many programs are available for homebuyers allowing them to purchase homes they otherwise would not qualify for. One program includes putting down zero to minimal money down toward the down payment.

If you do make a down payment lower than the conventional loan requirement of 20-percent, you may be hit with paying a private mortgage insurance (PMI) premium. The word insurance should not fool you. This is not insurance to protect you as the buyer. It’s designed to protect the lender in case you were to default on the loan.

If your mortgage has even issued after 2006, the private mortgage insurance premium you paid effective 2011 may be eligible for deduction. There are stipulations to this write off. As your income increases above $50,000, this write-off will phase out.

Homeowners just starting out with itemizing deductions for the first time can get a bit overwhelmed. One mistake commonly made is overestimating the taxes you’ll save.

As an example:

Your interest and mortgage payments are $1,500 a month, and your property taxes are $3,000 for the year. That is a combined total of $21,000 a year. For someone in a 25-percent tax bracket, you probably think you’ll save $5,250 a year. This is not always the case.

You should still keep in mind that you are giving up the standard deduction. For 2016, that deduction is worth $12,600 for married couples. Anything exceeding the $12,600 will be eligible for the homeowner tax benefits. That will include homeowner write-offs and charitable contributions.

Tax Calculators: What Are They and How Can They Help?

Instead of preparing an entire return, one of the best ways to estimate your income tax for the year is to use a tax calculator. The best part about using a tax calculator is the fact that you can do a lot more than just estimate your tax for the year. You can use it to help you get an estimate on what your refund will be, figure out the correct amount of withholding, and how certain life events will affect your tax return.

Getting a Good Estimate on Your Tax Refund

TurboTax has a free tool called the TaxCaster that will give you a good estimate on the tax return you will get this year.

All you will need to do is enter basic information such as your filing status, your estimated tax payments, your age, and deductions and credits you quality for. The calculator will then go to work and estimate the refund you should get based off all the information you provided.

However, it is important you keep in mind that this is just an estimate, there are so many factors that can affect how much of a refund you get there is no way to predict the exact amount. With that said, this calculator does give you a better estimate than most of the other calculators out there.

Correct Tax Withholding Estimates

One of the most frustrating things is when you pay the IRS more than you need to through tax withholdings. That is exactly why there is a withholding calculator that will give you a good estimate on the amount of allowances you should be claiming on your W-4 form.

All you need to do is provide some extensive information on your income and finances. You will have to give a bit more information when getting an estimate on this or else the calculator won’t be able to provide you with an accurate estimate. Before you use this calculator, you might want to evaluate the amount of deductions and credits you might qualify for because these can greatly affect the number of allowances you claim.

How IRA Contribution Calculators Can Help You

When you contribute to the IRA retirement account, you won’t know right away whether or not you will see any income tax savings. The good news is the fact that TurboTax has an IRA Retirement Calculator that will completely take the guess work out of this and give you a good estimate on the amount you will save (if you will save any).

All you have to do is enter some very basic information such as your annual earnings and filing status, the calculator will then do some calculations and let you know an estimate on your tax savings and will even tell you whether a Roth or a traditional IRA is the best option for you. Many people are worried about using these calculators because they feel like they are too hard to use or that they will have to give away too much personal information. This calculator is so easy to use, anyone can use it! You also won’t have to give away any personal information such as your social security number.

How life events affect your tax return

You all know that major life events can give you some great tax savings. These life events include (but are not limited to) getting married, having a baby, and making a big purchase such as a house. It is very hard to calculate on your own how much you can save on your taxes from these major life events, but TurboTax has a calculator you can use to help you determine the amount.

This calculator is also extremely easy to use, all you have to do is fill in your income, answer a few questions, and let the calculator do the rest.

A Small Business’s Guide to Web Hosting

Before you are able to start working on your website’s design, you need to hire a service that makes it visible. This means that you have to select a web hosting service to put your site online. Web hosting services allow your website to be visible to the world and updating your website is easy. Web hosts are responsible for the technical details of keeping your website up, which allows you to spend your time focusing on the appearance and functions of your online store. Here is an example of an online football jersey store.

Additionally, web-hosting services are able to provide you with a variety of beneficial features. They assist with domain name selection, provide you with creation and design tools, and many of the best web hosting services allow you to do everything that you need to do digitally through them. If you plan to have an ecommerce site, you can find shopping cart software that will allow communication to be easier with your web hosts email functionality and more.

Lastly, web-hosting services have security features available to protect you from malware/viruses and cybercriminals. They allow you to collect payments and if you go with a credible web host, they will have Secure Sockets Layer, SSL, certifications available, which helps you gain credibility among your buyers.

As you can probably see web-hosting services allow you to do everything that you need through them and you do not even have to have an onsite IT team.

Types of Web Hosting

The type of web hosting that you use for your website, such as the ones described above are known as “shared web hosting”, also known as “virtual hosting”. This means that instead of having a dedicated server for one website, numerous websites are on the servers simultaneously. However, each site has its own section of the service and by taking this route the website owner does not have to encounter hardware and maintenance fees that come with hosting a site on their own dedicated server.

Another type of web hosting is colocation hosting. This allows the business to have its own dedicated server in someone else’s data center. If a business has dedicated hosting, they have their own server. Dedicated hosting can be ideal for high trafficked websites yet they are more expensive than shared web hosting.

Web Hosting Costs

Web hosting providers charge monthly fees for their services. The rate you pay is based off the number of website you need to host, how much storage space you need, how many website building tools you want, and the number of email accounts you need. Some services charge a flat fee for unlimited everything while others have a tiered price card based on the business’s needs.

Small packages are usually good enough for a small business with one site. However, as you grow you are capable of upgrading your plan to accommodate your growing business. The good news is if you commit to several years of hosting many web-hosting providers will offer you a good discount. For an additional fee, you may be able to have increased security protection thrown in too.


The Health Care Reform Tax Penalty Explained

In 2014, it was put into effect that most Americans had to have health insurance under the Affordable Care Act. Additionally, those who were required to have insurance, but opted not to get any could face a penalty for 2015.

For those who have employer insurance, Medicaid, Medicare or a private provider, no penalty will take place.

Those who didn’t have insurance in 2014, were giving a window from October 1, 2013 to March 31, 2014 to purchase an qualifying health insurance plan through their state or via the federal Health Insurance Marketplace.

Penalty Calculator

For those who decided they didn’t want to purchase insurance before the deadline, TurboTax decided to create a penalty calculator that helps them estimate how much their penalty will be. The amount of the penalty varies for all individuals since it goes by family size and income. The good news is you are allowed to have a gap in your coverage as long as it does not last for more than three months.

Penalty Estimations

For 2014, the annual one time penalty is $95 per adult or 1% of your total income. For uninsured children the penalty is $47.50 per child, with the maximum for the entire family being $285 annually.

Coverages is assessed on a monthly or prorated basis, which means that you will only have to pay a percentage of the penalty for the months that you don’t have insurance. This penalty will be imposed on your 2014 tax return and filed in 2015.

The penalty will increase each year. For 2015, the penalty is $325 per adult and $161.50 per child, with a maximum cap of $975 per family. This is approximately 2% of the income of the family depending on how much they make. Additionally, in 2016, the penalty will be about $696 per adult and $347.50 per child, with a maximum cap of $2,085 per family, which could be 2.5% of the total household income.

Some individuals won’t have to purchase healthcare insurance including those who do not make enough money to be required to file tax forms. Others who won’t be affected by the health insurance laws include certain religious groups and Indian tribe members.

If you have questions about the health care reform, make sure you stop by the TurboTax community.

Five of the Most Common Tax Questions for 2017

Tax season will be here before we know it. Therefore, tax questions will be being asked left and right. There will be questions about claiming parents as dependents, deducting books for college and more. Therefore, we decided to put together a list of five of the most common tax questions.

What documents are needed to do my taxes?

The two common forms that taxpayers need to do their taxes are a W-2 form that comes from employers and a 1099-INT form that comes from the bank. Other important information you want to have with you everyone’s social security numbers and receipts if you have made charitable contributions throughout the year.

Do I need to file taxes if I didn’t make a lot of money?

tax filing questionsIf your income is below the IRS filing requirement ($10,000 for individuals and $20,000 for married couples under 65), it is still recommended that you file taxes. The only way you can get a refund is if you file a tax return.

Therefore, you should file taxes so you can take advantage of refundable tax credits. The average unclaimed tax refund is worth more than $600, and the IRS puts a three-year window on claiming past refunds.

Who can I claim as a dependent?

Many people know they can claim their children as dependents. However, you can also claim elderly parents, significant others and other relatives in some cases. They will have to meet certain requirements, but each dependent can allow you to deduct $3,900, which reduces your tax liability.

What tax deductions and credits are available for parents?

If you have a child, you can take advantage of the dependent exemption, which is worth $3,900 and the additional credits below:

  • Child and dependent care tax credit: For parents who have to pay for childcare. This credit is worth up to $1,050 per child.
  • Earned income tax credit: For low to middle income working Americans. This credit can be as much as $6,044.
  • Child tax credit: For those with big families. This credit can get you up to $1,000 per child under the age of 17.

What tax benefits are available for college students?

Going to college is expensive, which is why the IRS provides some relief options in the form of education tax credits and deductions. This can help you save money on college expenses and some of these include:

  • The American Opportunity Tax Credit: It helps parents and students pay for college with a credit that is worth up to $2,500 per student. It helps with tuition, fees, books, supplies and equipment.
  • Lifetime Learning Credit: You can get up to $2,000 per tax return for college tuition, fees, and supplies paid directly to the institution.
  • Tuition and fees deduction: This allows you to deduct up to $4,000 from your taxable income for your college expenses.

Discover The Benefits of Filing Your Taxes Online

Keep in mind, if you file online with H&R Block or TurboTax they will ask you the correct questions to let you know which deductions you qualify for and guarantee you will receive the largest refund ever.

Their online filing services have the ability to import your W2 information into your tax return so you can avoid worrying about your forms being delivered via snail mail. You can also use their free tax refund calculator to see how much of a refund you can expect.