Home Improvements Can Help You at Tax Time

 Permanent link
Summer can also be home improvement time for millions of Americans. From painting, to yard and landscape improvements, to full-blown home renovations and additions, summer is the time when many homeowners work to spruce up or just maintain their residences. Aside for increasing your home's value, fixing up your home can help lower any future tax liability.

Before we look at what you can do to help save on taxes, we need to clear up how the IRS defines a home repair and a home improvement for tax purposes. 
The terms "repairs" and "improvements" can be confusing as they are used regarding taxes and application to the value of your home, and each one has different implications. A repair or maintenance expense that fixes or simply maintains a part of the home is not tax deductible and cannot be added to the basis of your home, so there is no tax benefit here. Examples of these include repairing a broken water pipe, fixing a leak in a roof with a patch, or painting your home.

Yet a home improvement is much more of a tax benefit, because it adds to the value of your home and can then be added to the basis. For example, adding a new roof, an energy-efficient window or door, hot water heater, or even a new room are, all considered improvements, as is landscaping. While you own your home, keep a record of the cost of improvements you make that add value, such as landscaping, patios, swimming pools, decks, room additions and roof replacements.

When it comes time to sell, subtract the cost basis from the sale price to determine any gain. Currently, only the first $250,000 in gain ($500,000 of married filing jointly) is exempt from being taxed. Any gain above that may be subject to income taxes.

The home is typically the largest single asset most taxpayers own, and it's often the one that takes the most work to keep in the best shape possible, in terms of both time and money spent. While you can't get time spent on home improvements back, you can often get some of your dollars returned either at tax time or when you sell, provided that you track of all of your costs as you own and work on your home. By having your receipts on hand, down the road when you sell your home, you can avoid hitting a big tax gain—and a substantial tax bill. Like many things, a little time spent preparing now can help you enjoy the tax benefits in the future.

Mid-Year Tax Tip - Evaluate What You are Saving and How

 Permanent link
Look for ways to participate in tax-free savings opportunities. Many companies offer a 401(k) program, which is a helpful way to save and reduce your taxable income. The maximum contribution amount is $17,500. A simple tax tip is to become involved with a 401(k) plan and to try to contribute the maximum amount. If you’ve been unable to participate thus far this year, see if contributing or even increasing your contribution for the remainder of the year might work. If you turn 50 this year, or are already 50 or older, you can increase your contribution by an additional $5,500.

Special Tax Considerations for Dads

 Permanent link
Happy Father’s Day to all of the dads out there! Did you know that not only are there a great many tax considerations related to fatherhood, but many of them are often overlooked. Your tax return is a unique place to take advantage of tax benefits that come with being a dad. Here are just a few of those tax tips and considerations:

To start with, there is no better tax benefit than having a new child and dependent on your tax return. Most likely you may now be able to claim an additional exemption amount for the new dependent as well as the various tax credits related to a child.  The credits include the Child Tax Credits, Child and Dependent Care Credit—more commonly referred to as the “daycare credit,” and even the Earned Income Tax Credit for families with an income of less than $51,567.

If this is your first Father’s Day, you may be able to claim the medical expenses you paid since January for the birth of your child and all well-baby and first-time parent medical check-ups.   

If you coach, umpire, or otherwise volunteer your services for your children’s activities, you may be able to claim a charitable contribution deduction. Your mileage to and from the volunteer activity is deductible at 14 cents per mile and out-of-pocket expenses for supplies, equipment, and uniforms necessary to participate in the volunteer activities are also deductible as a charitable contribution. So keep those receipts and a mileage log for all your travel as a volunteer in youth organizations.  

If your children are under the age of 13 and you sent them to a day camp while you and your spouse worked this year, you may be able to include your expenses for the day camp with other child care expenses you paid during the year to claim a the credit for child care expenses. You are allowed a credit of between 20 and 35 percent of your expenses up to $3,000 for one child and $6,000 for two or more children when you file your income taxes. Make sure you get a receipt from the daycare provider(s) and the day camp.

If you are a single dad, don’t forget to file with the correct filings status. You may be eligible to use the Head of Household filing status if you have physical custody of your child, are single, and provide the main support of your household. This will qualify you for lower tax rates, higher credit amounts and potentially many other tax benefits.   

Being a dad is hard work that brings with it personal reward but sometimes with seemingly little financial reward. Ironic as it may seem, your tax return can be a place to pick up some of those financial rewards for being a dad.

Mid-Year Tax Tip - Are You Expecting Major Life Changes?

 Permanent link
If you are planning on a child graduating and going out on their own, having a baby, having a child start college, retiring, or even becoming the primary care-giver for an aging relative, you may have hidden tax deductions you weren’t aware of. These and many other major life changes can provide many tax deductions and credits that you can plan for now to maximize your tax benefits at tax time.