TaxTalk

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.

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.

Common activities such as purchasing a new car or making home improvements may lead to tax benefits. For example, the Energy Tax Act offers tax incentives for energy-efficient car purchases or home repairs. If you need to replace a hot water heater, install a new a/c unit, re-insulate your home or put in new windows, making a “green” purchase can help you save on your taxes. Be sure to save all of your receipts for tax time! 

With Memorial kicking off the unofficial start to summer, taxes may be the last thing on your mind right now. But, with June fast approaching, it means we are halfway through the year! Now is a good time to start thinking about a mid-year tax check-up. To start, take a look at the past six months of your financial and earnings activity; this will allow you to also have a better sense of what you can expect for the remainder of the year. This can help you evaluate your projected tax burden and review ways to reduce any taxes you may owe. 

Stay tuned for additional mid-year tax tips or reach out to your local Tax Pro for a mid-year review.    

 

Memorial Day is this coming Monday. It may be the unofficial kick off to summer, but, more importantly, it’s a time to remember those who made the ultimate sacrifice for our nation. So, take the time this weekend to remember the servicemen and women who gave their all.

For those who currently serve our country, there are some special tax considerations that can help them save money come tax time.  These include:

Taxable Income for Military Personnel
Members of the United States Armed Forces receive many different types of pay and allowances including; active duty pay, special duty pay, hazardous duty pay, incentive pay, reserve training pay, and bonuses.

Moving Expenses
Members of the Armed Forces do not have to meet the usual time and distance tests to deduct moving expenses if they move because of permanent change of station, which includes: 

• A move from home to first post of active duty
• A move from one permanent post of duty to another
• A move from last post of duty to home or to a nearer point in the United States.

If you are the surviving spouse or dependent of a deceased member of the Armed Forces, a permanent change of station includes a move to: 

• The member’s place of enlistment or induction
• Your, or the member’s, home of record
• A move from last post of duty to home or to a nearer point in the United States

Combat Pay
If a member of the United States Armed Forces is serving in a combat zone, some pay may be excluded from income. Examples of excludable income include active duty pay earned in the month served in a combat zone, imminent danger/hostile fire pay, and a re-enlistment bonus if the re-enlistment occurs in the month you serve in a combat zone. Non-military individuals working in a combat zone, such as civil service employees and members or the Merchant Marines, do not qualify for the tax-exempt combat pay exclusion.
 
Exclusion of Gain from a Home Sale
Generally, a taxpayer must have owned and lived in their home as a principal residence for two years of the five-year period ending on the date of sale of the home (ownership and use tests) to be able to exclude $250,000 of the gain ($500,000 if Married Filing Jointly). However, those serving on qualified official extended duty in the military can elect to suspend the five-year test period ending on the date of sale of the principal place of residence for up to 10 years. 

Retirement Contributions 
According to the IRS, Armed Forces members (including reservists on active duty for more than 90 days during the year) are considered covered by an employer-maintained retirement plan. Service members who are in a combat zone during the year should include their nontaxable combat pay when determining earned income limits for making deductible contributions to a traditional IRA or for making contributions to a Roth IRA.  In addition, servicemembers in a combat zone during the tax filing period may have additional time to make an IRA contribution. 

Uniform Expenses  
Generally, these are not deductible, except when regulations prohibit a servicemember from wearing uniforms off duty. In this case, the unreimbursed cost and expense of upkeep of the uniforms can be deducted including:  

• Military dress uniforms and utility uniforms that cannot be worn when off duty
• Uniform accoutrements such as insignia of rank, epaulets, and swords
• Reservists’ uniforms if they can only be worn while performing reservist duties

The additional tax deductions and credits listed above may seem to make taxes more confusing, but they're a result of creating much needed benefits to our military members. So, for those of you in the armed forces, be sure take advantage of these tax deductions, credits and other benefits as they are yours and you have worked the hardest to earn them for all of us.  

There’s nothing more frustrating than expecting a certain amount in your tax refund and then having it be less when it finally arrives. And not less than you hoped, but less than you expected once you filed. There are many reasons this could happen; let’s look at them.

There are certain cases where if you owe the government or have outstanding dept, your refund can be offset or used to pay the debt. This could be the case if you owe delinquent federal taxes, federal agency non-tax debts (as with HUD loans, Student loans, VA loans), state income taxes and other obligations. It could also come into play if you have state unemployment compensation claims due for various reasons, including fraudulent unemployment compensation filings and/or delinquent child support.

The Treasury Department’s Financial Management Service (FMS) issues federal income tax refund checks, but it has also been authorized by Congress to conduct the Treasury Offset Program, which allows FMS to withhold all or part of your refund to pay certain delinquent debts from your federal income tax refund. 

The debts are collected in the following order:

• Federal taxes of all types
• Past-due child support
• Federal agency non-tax debts (such as student loans)
• State debts other than past due child support (such as state taxes, local taxes, or overdue library fines)

Anytime your federal refund is completely used or reduced by FMS, you will receive a letter explaining the offset.  If your refund has been reduced or delayed, you can contact FMS at 800-304-3107 for additional information.

If your refund is more than your debt, you usually receive the balance of your refund in the same payment manner you requested when you filed your return, whether it be via direct deposit or mailed check.

For married taxpayers who file a joint return, where only one spouse is responsible for a debt in FMS collection, the IRS does have a process in place to allow a partial refund to be processed for the spouse who doesn’t owe the debt. To receive your share of a refund that has been reported to FMS for collection, you should complete IRS Form 8379, Injured Spouse Allocation, which allows the “non-debtor” taxpayer to provide information to the IRS, who will then determine the allocation necessary for the tax refund. The form can be filed by itself after a tax refund has been reduced or eliminated in the Offset Program, or it can be completed and attached to the tax return when the return is filed, if you know of the offset in advance. 

If you are under an Installment Agreement Request with the IRS, FMS will intercept any refund you may have and apply it to the principal balance of your tax debt. The refund offset is not considered part of your monthly payments; you should continue to make your payments in full on the appointed date as agreed upon in the original application. 

The most important thing to remember if your refund is less than anticipated is to act quickly to understand exactly what happened so that you can ensure any amounts removed or offset to settle other past due debts are accurate. If you have any questions, call your local Jackson Hewitt Tax Pro.   

School is almost out for the summer and, for many high school and college students, that means the start of a summer job. Besides putting cash in their pockets, summer jobs are a great opportunity for young Americans to learn about income taxes. Dependent student income from a summer job, or any job, can have implications not only for the student, but also to the parent’s tax return.

Here are five things every parent needs to know before talking to their kids about their summer job:

When to file a tax return – If your child has as little as $400 in self-employment income, they may be required to file an income tax return; or if they work for someone else, they are required to file once they have more than $5,950 in income.

Who files – Taxpayers with wages will need to file a tax return. This is true even if income is less than the filing threshold, as it will enable the student taxpayer to get withheld income taxes back from the IRS. Students who have earnings from a job must file their own tax return and can’t include their income and tax withholding items on the parent’s tax return.

Tax rules for claiming working dependents – Tax rules for a dependent child are different than any other type of dependent. A dependent child can have any amount of income and still be claimed as a dependent as long as the child does not provide more than half of their own support. This includes gifts, entertainment, food, shelter, clothing, purchasing a vehicle, maintaining a vehicle, other forms of transportation, and school expenses. Individuals who can be claimed as a dependent on another taxpayer’s return (usually their parent’s or legal guardian’s) cannot claim their own exemption. This is true even if the other taxpayer chooses not to claim the individual as a dependent.

Forms W-4 – All employees on payroll will have taxes directly deducted from their paychecks. Employees are required to fill out a Form W-4 before beginning their employment to let their employer know how much to withhold for federal and state income taxes. A good rule of thumb for students working part-time throughout the year, or just over the summer, is to claim zero exemptions to ensure they have enough taxes withheld come tax time. If income is low enough, the taxpayer student should get all of the taxes back and, if not, having enough withholding should prevent a balance due when filing.

Claiming Child Tax Credit – Working dependents under the age of 17 are still eligible dependents for the Child Tax Credits. If a parent can claim a working 16 year old as a dependent, the parent can claim Child Tax Credit, which can be worth up to $1,000 per eligible dependent.

It can be difficult to think about how your child’s summer job can affect your tax return next year, but understanding the tax implications now can help you and your child make smart decisions to lower your tax expenses and possibly increase next year’s income tax refund. Those who tend to get the largest tax refunds are those who plan their tax strategy throughout the year, not just at tax time.  

For more information see, A Lesson from the IRS for Students Starting a Summer Job on the IRS website.