The IRS's new, simplified option for claiming a home office deduction greatly reduces paperwork and recordkeeping, but some restrictions apply.
Monday, June 30, 2014
Friday, June 27, 2014
Monday, June 23, 2014
Friday, June 20, 2014
At the end of every year, people often scramble to wrap up their charitable giving by Dec. 31. A little planning throughout the year can go a long way to avoid the last-minute rush. Make 2014 the year you get ahead of your charitable contributions. It can be more effective for you and those who benefit from your giving. Here are five steps to consider as you pursue your charitable goals over 2014 and beyond:
1 - Make a plan
Just like other aspects of your financial life, most of your charitable giving should meet specific goals you have in mind. Take some time in the early months of the year to assess the causes you would most like to support and determine your giving priorities. You also may want to estimate your income for 2014 and set aside a percentage that you'd like to donate.
2 - Establish automatic plans
Some charities allow you to make periodic contributions automatically using a credit card or a bank debit. You may find it easier to make a larger donation when you give a little bit at a time. Check with your favored charities to see if an automatic plan is available so you can implement a regular giving strategy. Not only does this approach make it easier for you, it also helps the charity as they receive systematic donations throughout the year.
3 - Explore the potential for employer-matching donations
Some employers provide matching donations (up to a certain amount) of your own contributions to a specific charity. It multiplies your gift and can make a big difference for charities. If your employer offers a match, do your homework and make sure you're taking advantage of this benefit.
4 - Understand the tax ramifications
The general rule of thumb is that most charitable gifts can only be deducted from your taxes if you itemize deductions. In 2014, the standard deduction for those who choose not to itemize is $12,400 for married couples and $6,200 for a single tax filer. Those who don't itemize deductions can still save on taxes by gifting appreciated assets to charity. This may be particularly effective for those with higher incomes who would be subject to an accelerated capital gains tax rate of 20 percent (the standard capital gains tax rate is either 0 percent or 15 percent, depending on your tax bracket).
Another important tax consideration is a restriction on itemized deductions for higher income individuals (known as the Pease Provision). It limits itemized deductions for those with Adjusted Gross Incomes above $254,200 (single tax filers) and $305,050 (married couples filing a joint return) in 2014. You should check with your tax advisor to learn more about how this rule could affect the tax benefit of your contributions.
5 - Consider the longer term
Charitable giving isn't simply a year-to-year strategy. As you get older, you want to think about how you can effectively manage your estate, while also benefiting your favorite causes. Vehicles such as Charitable Remainder Trusts can help you leave a legacy that will last well beyond your lifetime. Discuss these matters with your financial, legal and tax advisors to see what options might work best for you.
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Tuesday, June 17, 2014
Whether you are scrambling to get your documents together for last year's taxes or just planning to do things better for this year, the key to a less stressful tax return is organization. Being organized doesn't have to mean complicated filing systems but it does mean you have to give up the "file pile" mentality. There are some simple steps you can take to simply the tax preparation process while keeping your sanity.
Most people can use a 3-folder system. Income, deductions and investments are the three major categories you will need. This is a great way to stay organized so that you can always find what you need when you need it. If you have others, make folders for them as you deem appropriate. Let's look at what goes into each folder.
Create one file for all sources of income. This file should hold pay stubs, tips, dividends, distributions, rental income. If you have numerous sources, you may want to have several folders and group them logically. Each folder should have a tally sheet where you record each item as you file it. It makes it easier to total everything at year's end then to wade through the stacks of paper. If you've been diligent, all the documents are in one place for reference and the details are entered on the tally sheet for easy processing.
Store anything that can be deducted such as mortgage interest, child care expenses, medical expenses, non-refundable work-related expenses. As with income, it may be easier to manage with multiple folders. Tally sheets for each category of expense can reduce compilation time come April. While you may not feel like taking the time, it will pay off once you see how much time you save later.
IRAs, Roth contribution records and distribution records if you've started collecting from various plans are all important documents. Grouping them by how they are taxed: tax-deferred, non-taxable and taxable invests, can simplify the process.
When it is time to do the prep work, review each folder, total the numbers for each category and fill in the blanks on your itemized return. Match W2s and 1099s with your records, checking for any discrepancies. A little preparation all year long can save headaches at filing time.
Taxes do not have to bring you stress and worry. When you take some time throughout the year to prepare, it makes it all easier when tax time comes around.
Article Source: http://EzineArticles.com/5817243
Saturday, June 14, 2014
Earned Income Tax Credit, more commonly referred to as EITC or EIC, increases your income tax refund. If you file as single taxpayer or are head of a household, with one or more dependents, and earn a low to moderate amount of gross income during a tax year, you are eligible for this tax credit. Unlike income adjustments or deductions that change the amount of your gross income, a refundable tax credit increases your tax refund literally dollar for dollar. EITC, created through Congressional legislation in 1975, has grown into a significant reporting function in our US income tax system. Taxpayer information supporting an EITC claim has grown more complex and onerous over the years. This tax credit even has its own Internet web page at EITC Central. This resource, separate from the IRS website, provides eligible taxpayers and those who prepare tax returns important help following the rules and regulations (collectively called due diligence) in reporting eligibility information associated with this single tax credit. The requirements are documented in IRS Publication 596, Earned Income Credit. If you are eligible for EITC, you need to understand the growing set of rules imposed by tax authorities and follow them carefully to insure receiving your full tax entitlement.
Earned Income Tax Credit eligibility factors
EITC is based on income you earn. According to the Internal Revenue Service, earned income comes from a person, company, or agency you work for or from a business activity you operate or own. Wages, salary, or compensation, are all considered taxable income and are combined in order to determine the amount of the earned income tax credit. This government credit is a generous incentive to low to moderate income earners. Maximum gross income limits pertaining to eligibility are however imposed. Taxpayers require a valid Social Security number and must be either a US citizen, resident alien or a nonresident alien filing jointly with a US citizen. You cannot have any source of foreign income nor can you have unearned sources of income like savings account interest or stock dividends that exceed specific dollar limits. These limits can change from year to year. It is best to review current EITC income limits, maximum EITC amounts, and related tax credits like child tax credit (especially if you file Head of Household) on the official IRS website, irs.gov.
Earned income and unearned sources of income cannot exceed specific EITC eligibility dollar limits.
Income tax filing status is also a factor. If you are legally married as of December 31 of a tax year and claim the earned income tax credit, you cannot file an income tax return as Married Filing Separate (MFS). In addition, you can not be considered or file with someone considered a qualified child (QC) of some other person. If you file as Head of Household and claim one or more dependents, there are eligibility "tests" regarding age, relationship, and residency of these dependents during the tax year. These eligibility factors are an important part of your EITC claim in the 2011 tax year. Another valuable resource is IRS Pub 501, Exemptions, Standard Deduction, and Filing Information, which has the most current source of IRS rules that relate to filing status and dependency for the current tax year.
An Earned Income Credit checklist
You must provide sufficient documentation to answer EITC eligibility questions. This tax credit is calculated on how much earned income you report on your individual income tax return, your filing status for the tax year, and the number of dependents you support. Both you, as an eligible tax payer, and your tax preparer, are responsible for fulfilling all the information requirements when completing your individual income tax return. In fact, you can find IRS Form 8867, Paid Preparer's Earned Income Credit Checklist, on the official IRS website. It includes specific questions that must be answered when completing your eligibility information. Failure to meet any of these requirements will result in significant financial and/or tax-related consequences to both you and the person preparing your income tax return.
Tax incentives like the Earned Income Tax Credit are ways government agencies offer incentives to those who work but, despite their best efforts, earn low to moderate amounts of money. The EITC helps, for example, hardworking single parents responsible for others who depend on them for support. This tax-free money added directly to your income tax refund boosts not only your personal standard of living but, in fact, the entire economy. The significant size of this government-funded entitlement however has brought about a complex set of rules and regulations. Seek professional tax advice especially when filing an income tax return. An EITC checklist covering specific eligibility factors will help you, and the person who prepares your income tax return, remain in compliance with changing tax definitions and specific rules of due diligence documenting your eligibility for this valuable earned income tax credit. For annotated citations, please visit one of my tax-related blogs.
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