Month: March 2017

THE 5 Largest Tax Credits You May Qualify For

Identifying which tax credits apply to you can be a big help as you prepare to file your income tax return.  Here are the 5 largest tax credits you might qualify for.

Identifying which tax credits apply to you can be a big help as you prepare to file your income tax return.  Here are the 5 largest tax credits you might qualify for.


 Most people cringe when it’s time to file taxes, I know I used to. They rush through their returns or hire accountants to do the work only to feel that the tax code has eaten most of their hard-earned income. A number of federal tax credits exist to help taxpayers retain more of their earnings. Identifying which credits apply to you will reduce your pain as you prepare to file your income tax return.


Earned Income Tax Credit

One of the most substantial credits for taxpayers is the Earned Income Tax Credit. Established in 1975 — in part to offset the burden of Social Security taxes and to provide an incentive to work — the EITC is determined by income and is phased in according to filing status: single, married filing jointly or either of those with children. Eligibility and the amount of the credit are based on adjusted gross income, earned income and investment income.

A person must be at least 25 years old and younger than 65 to qualify. If married, both spouses must have valid Social Security numbers and must have lived in the country for more than six months. If you may be claimed as a dependent on another filer’s tax return, you do not qualify. Those “married filing separately” do not qualify for the EITC.

One fact often misunderstood about the EITC is that self-employed taxpayers may qualify for it. Many self-employed people have to amend their returns, because they missed out on the credit, simply because they didn’t think they were eligible. The reverse happens as well, many people had to amend their returns because they filed for the credit but did not qualify, typically because of investment income.

The Earned Income Credit is set up for a service-sector person or blue-collar worker … essentially, someone not earning a lot of money.


American Opportunity Tax Credit

For years, the Hope Credit helped families pay the costs of higher education. Since 2009, that credit has been rebranded and expanded as the American Opportunity Tax Credit.

Under the Hope Credit, taxpayers received a credit for only two years of undergraduate tuition. The AOTC covers four years of post-secondary education. It also broadens the range of taxpayers who may receive the AOTC by increasing the maximum income level.

The full credit is available to people whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing jointly. These income limits are higher than those for another education credit, the Lifetime Learning Credit.

Depending on your income (the credit drops as income increases), you may receive up to $2,500 of the cost of qualified tuition and course materials paid during the taxable year. The student must be enrolled at least half-time for at least one academic period. This credit is available on a per-student basis.

If you opt to include tuition costs and other college-related fees as one of your deductions, you may not claim the American Opportunity Tax Credit in the same tax year. The IRS recommends that taxpayers calculate the effect of both options on their tax returns to see which is most beneficial – the deduction or the tax credit. Tax software will automatically compare the two.

Lifetime Learning Credit

The Lifetime Learning Credit, also established to offset the costs of post-secondary education, differs from the American Opportunity Tax Credit in that it is available for any years of post-secondary education, not just the first four. Also, the credit is available for people not pursuing a degree.

The Lifetime Learning Credit may be as high as $2,000 per eligible student. For 2016 the full credit is available to eligible individual taxpayers who make $55,000 or less, or married couples filing jointly who make $110,000 or less. The credit phases out as income surpasses these amounts.

Child and Dependent Care Credit

The Child and Dependent Care Credit is there to help defray costs of babysitting or daycare. It’s available to people who must pay for childcare for dependents under age 13 in order to work or look for work.

The credit is also available for the cost of caring for a spouse or a dependent of any age who is physically or mentally incapable of self-care.

Filing status must be single, married filing jointly, head of household or qualifying widow or widower with a dependent child. The credit provides up to 35 percent of qualifying expenses, depending on adjusted gross income.

Savers Tax Credit

The Savers Tax Credit, formerly the Retirement Savings Contributions Credit, is for eligible contributions to retirement plans such as qualified investment retirement accounts, 401(k)s and certain other retirement plans. Taxpayers with the least income qualify for the greatest credit. That credit is up to $1,000 for those filing as single, or $2,000 if filing jointly.

For 2016 the maximum income for the Savers Tax Credit is $30,750 for single filers.  $46,125 for heads of household with income, and $61,500 for those married and filing jointly. Filers must be at least 18 years old and may not have been a full-time student during the calendar year or claimed as a dependent on another person’s return.

Whom the Credits Benefit

Credits are primarily for low-to-moderate-income earners. At an income of $30,000 to $50,000 a year, an individual’s chances of qualifying for credits can drop significantly.  Think of that as the bridge range: $30,000 to $50,000. In there, you’re moved up to a new tax bracket. People go crazy because their credits are going away and it’s scary.

Unless such filers’ itemized deductions exceed the standard deduction, they may find themselves in an uncomfortable gray zone of the tax code. In many cases, ineligibility for tax credits could mean the loss of $3,000 to $4,000 at tax season.

Now it’s your turn. What tax credits did I miss? If you know of any please share with the rest of us.

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Book Review: The Authentic Budget by Sarah Li Cain

 

 

Disclaimer: This is not a sponsored post. I did not receive any compensation for this review. I was allowed to read the book free of charge in order to write this review. The opinions are my own. 

 

I am a traditional, old school budget type girl, so I was a tad bit skeptical when I began readingThe Authentic Budget: Harness Your Personality to Manage Money Like a Pro on Your Terms by Sarah Li Cain of the popular personal finance blog Highfiving Dollars. I figured it was more of the same that all the rest of us personal finance guru’s preach. You know that spend less than you earn sermon. I was pleasantly surprised. In my opinion, this book is more for the millennial looking to find their way in personal finance.

Sarah does an amazing job telling her story about how traditional budgeting was not for her and her husband. By walking you through each of the most popular traditional budgeting systems, she breaks down the reasons why traditional budgeting may not work for some. She is thorough in her analysis, as many budgets do make you feel as if you are smothered and can’t spend one penny over.

Her budgeting system makes sense. It is called the value based spending. This is where, ” You spend money on the things you value, and eliminate or minimize ones you don’t.” Now I myself don’t call my budget a budget, I call it a spending plan, and it is similar to what Sarah does. In her system, you spend your money based on your core values and what works for you.  By having you use a step by step guide, she has you dig deep into your values and what you really desire out of life, so that, you can use your money in a more productive manner.

She says, ” Once you are clear on your values and what brings you the most joy in life, we will get you on a plan to assess your current spending habits and how to realign them with your life goals and values.”

Of course, she has you do one of my favorite things to have a client do and that’s track their spending. She has you do this because you need to see where your money is going and if your current spending aligns with your values.

Afraid you won’t be able to pay off debt? No worries, Sarah includes that for you too. She has thought of everything in this book. Do you have spending triggers? Sarah shows you how to tame them where they won’t interfere with your authentic budget.

I won’t spoil the book for you, but all in all it is a very well written book. You can tell that Sarah is very knowledgeable about the topic of personal finance and budgeting. I’m not a book reviewer per say, but if I were, I would give this book 5 out of 5 stars. If you would like to learn more about The Authentic Budget: Harness Your Personality to Manage Money Like a Pro on Your Terms and Sarah Li Cain, head on over to Amazon and purchase the book for $.99. It’s budget friendly, and it comes with a workbook that shows you just want you need to do to take your money to the next level.

I am so glad that I added this book to my personal fianace library and I recommend that you do the same thing too!

 

 

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Tax Deductions For Bloggers

Blogging is a relatively new profession, but it's covered by the same tax laws that apply to many other occupations. Here are a few scenarios for tax deductions for bloggers

While sharing my content about income tax deductions, I had another blogger ask me about tax deductions for food bloggers. I decided I would answer his question with a post for my fellow bloggers. I will start with blogging in general and then move to his specific niche, food blogging.

At first glance, it may not seem that you are spending a great deal on your blogging endeavors. However, the fact is that blogging does cost money.  And, if you are making income from your blogging, you might want to offset some of that with the help of tax breaks for your costs. Before you go claiming tax breaks, though, it is a good idea to double check to make sure that the items you claim truly are related to your blogging efforts.

Blogging is a relatively new profession, but it’s covered by the same tax laws that apply to many other occupations. The main danger from a tax perspective is that, as a self-employed blogger, your taxes may or may not be automatically withheld from your earnings, as is typical with traditional employees. Additionally, you’ll owe self-employment taxes that most employees don’t pay. However, you may be able to take advantage of certain deductions to reduce your tax bill.


Estimated taxes

Be aware that as a blogger, you’re likely to face estimated taxes, something most traditional employees don’t have to worry about.

The United States tax system operates on a “pay-as-you-go” basis. Since you don’t have any taxes deducted from your blogging income, you must pay estimated taxes to the IRS every quarter. The due dates for estimated taxes are April 15, June 15, September 15 and January 15 (with some exceptions for holidays, etc.). If you don’t pay your estimated taxes in a timely fashion, you may owe an additional tax penalty. If you didn’t have any tax liability in the prior year, or if you don’t expect to earn at least $1,000 in blogging income, you may be able to avoid paying estimated taxes.

Self-employment tax

When saving for your estimated income taxes, don’t forget to set aside additional money for self-employment tax. From the perspective of the IRS, working as a blogger means you run your own business.

Even if you only work part-time as a blogger and full-time as a salaried employee somewhere else, the blogging part of your income qualifies as self-employment income. As a result, you must pay self-employment tax on that income. Self-employment tax is the combined Social Security and Medicare taxes paid by an employee and an employer. Since you run your own business, you must pay both the employee and the employer portions. Self-employment tax must be paid whether or not you owe any federal income tax.

 Deductible expenses for bloggers

The good news about running a business as a blogger is that you are allowed to deduct expenses that are considered reasonable and necessary to your profession. If you pay for advertising, supplies, office furniture, electronics, insurance or other goods and services that directly relate to your business, you can take those expenses off the income you earn as a blogger. If your office is in your home, you may be able to deduct some of your household expenses as well, including rent and utilities.

Business as hobby

The IRS will disallow your tax deductions if your blogging business is categorized as a hobby. To claim your deductions, you must demonstrate to the IRS that you are running a bona fide business. The most obvious way to prove this is to earn a profit. If you have a profit in at least three of the most recent five tax years, you can usually qualify your business as legitimate.

Other things the IRS may consider are the time and activity you put into the business, whether or not you depend on income from it and if you can reasonably expect to make a profit in future years.

 Blogging Deductions

Home Office SuppliesIf you are blogging from a home office, you can deduct a lot of the supplies that you use.  (Just make sure you are using them only for your blogging efforts.)

This can include equipment depreciation for computers, as well as the chair you sit in, the desk you use and things like calendars, pens, headsets, external hard drives, and telephones.

You can also deduct supplies that go with a specific type of blogging that you do.

If you have a photo blog, you can deduct the cost of the camera you use.  Did you need to buy a web cam to make videos you post on your blog? If so, that can be deductible as well.  If you have a dedicated cell phone used specifically in connection with your business as a blogger, some of those expenses are tax deductible.

Online ExpensesYou’re a blogger, so most of your expenses are likely to be related to your online activities.  Luckily, these are tax deductible.

The cost of WordPress plug-ins, web hosting, online advertising that you do, premium WordPress themes (like Bluchic), and domain name expenses are all tax deductible.  Web design, graphics and logos, maintenance and even Internet access can be deducted.

Even if you don’t have separate access for your blogging business, you can take a percentage of your total bill.

My internet bill is $39.99 a month, and about 80% of our Internet usage is accounted for by my professional blogging and financial coaching business.  As a result, $31.99 of our bill is eligible for a tax break.

On top of that, if you get SEO services or pay for social media consulting to help you improve your blog’s traffic, you can also get a tax break for those costs.

You can also get a tax break for access to subscriptions sites that you use for researching your blog posts and the costs of access stock image sites.

Use of Your HomeIf you have a dedicated home office space, you can get a tax break for the business use of your home related to your blogging activities.  Figure the square footage of your office space, and then use that to figure what percentage of the total square footage of your home you are using for your blogging activities.

My home office takes up about 2% of the square footage in my home.  This means that I can get a tax break for 2% of the utilities I pay, my mortgage payment and my homeowner’s insurance premium.  All of that adds up to close to a $400 tax break.

Not something to sneeze at.

Other Blogger Tax BreaksThere are a number of other tax breaks that bloggers might be eligible for.  These include:

 

  • Tax preparation costs for your business.
  • Business incorporation costs if you decide to move beyond a sole proprietorship (e.g. LLC or S-Corp).
  • Business license renewal.
  • Salary and contract fees you pay to those who do work for you.
  • Travel expenses related to your blogging. (I deduct costs related to BlogWorld attendance.)
  • Trade show fees.
  • Offline advertising costs, including business promotion like letterhead and business cards.
  • Annual fees for business credit cards.
  • Mailing materials.

Food Bloggers 

For an expense related to your business to be deductible, it needs to be both “ordinary” and “necessary”. No matter what the industry, that is the standard that the IRS will use. So, any time that you question whether something is deductible, as a first step, ask yourself is this “ordinary” and “necessary”?

An ordinary expense is one that is common and accepted in your industry. It’s the one time that you care about what your competitors are doing. No matter what your mother says, it does matter whether everyone else is doing it, too.

A necessary expense is one that is helpful and appropriate for your trade or business. You don’t have to prove that you couldn’t be in business without the expense – more or less, it needs to make good business sense.

Again, for an expense to be deductible, it needs to be both.

Deductible expenses also need to be distinguished from the cost of goods sold; capital expenses; and personal expenses. The cost of goods sold generally includes items like inventory for resale or the cost of raw materials to make goods for sale. Capital expenses encompass money used for start-up costs or improving your business (and must be amortized rather than deducted). Personal expenses are exactly what they sound like: expenses for personal or family use; expenses used for personal and for business purposes must be divided appropriately for purposes of expenses.

So, with all of this info, take a peek at your expenses and start thinking:

1, Is it “ordinary” and “necessary”? If no, not deductible. If yes, then move on:

2, Is it related to the cost of goods sold? If yes, then it’s more properly deducted in the cost of goods sold. If no, or if you haven’t included it in the cost of goods sold, then move on:

3, Is it related to capital? If yes, then you may need to amortize. If no, then move on:

4, Is the expense for an item for your personal or family use? If not, then IT’S DEDUCTIBLE! If yes, then you have a second part of the question: Can the personal use be separated from business use? You answered yes, then you can deduct the part attributable to business use as a business expense. If no, then no part of it is deductible.

    Some examples:

It’s ordinary and necessary to buy ingredients for the purpose of making food to review. No, it’s not related to the cost of goods sold. No, it’s not related to capital. But is it for personal use? This is what you’re going to have to sort out in order to figure your deduction.

Food that you eat at home is generally not deductible as a business expense. You have to have food to live, which makes it a personal expense. But to the extent that the food that you’re making and trying is for business use, it would be deductible, so long as you can distinguish the personal and business pieces. This means that it will depend on the individual facts and circumstances involved. Here are some examples:

      • Your blog is a baking blog and you make a full course meal, soup to nuts. Is it deductible? Perhaps the cost of the sourdough bread is … but not the rest of the meal.
      • Your blog is a baking blog and you make three loaves of sourdough bread. Is is deductible? Probably the cost of one loaf – that’s the part you needed for your review, right? But not three. The other two are likely to be eaten for personal use and are not deductible.
      • Your blog is a general food blog and you make a lasagne for your entire family. Is it deductible? Maybe. If your blog is a “family food blog”, then perhaps the family-sized portion is deductible. If your blog focuses solely on a niche, like healthy eating or cooking with noodles, then only the portion attributable to you, for the purposes of testing, is deductible.

So, separate, separate, separate.

The same general rules apply to restaurant reviews. To the extent that you order dishes solely for review, then it should be deductible (but only to you, not to your companions) but add-ons like wine and bread may not be.

A couple more caveats: It’s important to remember the hobby loss rules. If you’re blogging as a business, you may have deductions in a year that exceed your blogging-related income; you don’t want to make this a habit or IRS will believe that your blog is a hobby, not a business. If you’re blogging for a hobby, then your deductions may not exceed your blogging-related income.

Also, keep in mind that this area is very dependent on fact and circumstances.  Consider your own situation carefully and not attempt to make something fit that doesn’t. Don’t be greedy: think through your potential deductions carefully and honestly. Remember: pigs get fat, hogs get slaughtered.

You’ll need to retain excellent records with annotations about the expenses. Don’t expect the IRS to allow you to write off your grocery list. Keep your personal expenses distinct from your business expenses. Shop separately for your blog, where possible, and try to buy specifically for your business purpose. Don’t buy a dozen eggs, use one and try to write off the other eleven. Keep a good database of which items you used for which recipe (and, if you’re freelancing, for which publication or blog). If you can, it’s best to write directly on the receipt what it was for and how you used it: “lemon curd for holiday meal piece, Gourmet magazine, 12-24-16.”

Blogging and internet-related activities are relatively new to the tax scene. I’m not sure how the IRS is going to treat some of these specific areas. But the law is the law and the rules about “ordinary” and “necessary”, as well as distinctions between personal and business use, haven’t changed. Don’t get caught up in the “particulars” of it all, just follow the rules. If your situation is particularly tricky, you should definitely consult with a tax pro (it’s deductible!) before making any significant tax-related decisions.

Before you take a deduction, it is a good idea to check with a tax professional, and make sure that you are truly eligible for the tax breaks you want.

If any of my blogger friends have any other deductions that I may have overlooked, please comment below and help the rest of the class.

Disease Called Debt
Facebooktwittergoogle_plusredditpinterestlinkedinmail

9 Tax Deductions You May Not Have Known Were Tax Deductions Plus A Special Cheat Sheet

Few realizations are more painful than realizing that you forgot to include a tax deduction that would have lowered your tax bill or increased your tax refund on your tax return. You may be overlooking taxes that you pay that can be deducted. Take a look at these 9 tax deductions that you may not have known were tax deductions.

“It’s not what you earn that matters, it’s what you keep!” – Tony Robbins

Few realizations are more painful than realizing that you forgot to include a tax deduction that would have lowered your tax bill or increased your tax refund on your tax return. You may be overlooking taxes that you pay that can be deducted. Take a look at these 9 tax deductions that you may not have known were tax deductions.


1. Sales Taxes

You have the option of deducting sales taxes or state income taxes off your federal income tax. In a state that doesn’t have its own income tax, this can be a big money saver. Even if you paid state taxes, the sales tax break might be a better deal if you made a big purchase like an engagement ring or a car. You have to itemize to take the deduction, but the IRS provides tables to use as a guide.

2. Health Insurance Premiums

Medical expenses can blow any budget, and the IRS is sympathetic to the cost of insurance premiums – at least in some cases. For most taxpayers, deductible medical expenses have to exceed 10 percent of your adjusted gross income to be deducted. However, if you’re self-employed and responsible for your own health insurance coverage, you might be able to deduct 100 percent of your premium cost. That gets taken off your adjusted gross income rather than as an itemized deduction.

3. Tax Savings for Teacher

It’s the rare teacher who doesn’t have to reach into her own pocket every now and then to purchase items needed for the classroom. While it may sometimes seem like nobody appreciates that largesse, the IRS does. It allows qualified K-12 educators to deduct up to $250 for materials. That gets subtracted from your income, so you can take advantage of it even if you don’t itemize.

4. Charitable Gifts

Most taxpayers know they can deduct money or goods given to charitable organizations – but are you making the most of this benefit? Out-of-pocket expenses for charitable work also qualify. For example, if you make cupcakes for a charity fundraiser, you can deduct the cost of the ingredients you used to bake them. It helps to save the receipts or itemize the costs in case of an audit.

5. Paying the Babysitter

You might be able to deduct the cost of a babysitter if you’re paying her to watch the kids while you volunteer to work for no pay for a recognized charity. The federal Tax Court has ruled that it’s OK to list the cost of a babysitter as a charitable contribution on your return. You must be able to document that while she was performing her duties, you were volunteering.

 

6. Lifetime Learning

The tax code offers a number of deductions geared toward college students, but that doesn’t mean those who have already graduated don’t get a tax break as well. The Lifetime Learning credit can provide up to $2,000 per year, taking off 20 percent of the first $10,000 you spend for education after high school in an effort to increase your education. This phases out at higher income levels, but doesn’t discriminate based on age.

7. Unusual Business Expenses

If something is used to benefit your business and you can document the reasons or how your business benefited. You generally can deduct it from your business income. A junkyard owner, for example, might be able to deduct the cost of cat food that encourages stray cats to hang around and keep the mice and rats away. A bodybuilder got approved to deduct the body oil he used in competition.

8. Looking for Work

Losing your job is traumatic, and the cost of finding a new one can be high. If you’re looking for a job in the same field, you can itemize your deductions. If these expenses exceed 2 percent of your gross income, any qualifying expenses over that threshold can be deducted. It may seem like a high bar, but those costs add up quickly. Consider deducting the mileage you put on your car driving to interviews and the cost of printing resumes.

9. Self-employed Social Security

The bad news about being self-employed: You have to pay 15.3 percent of your income for social security and medicare taxes, the portions ordinarily paid by both employee and employer. But there’s one small consolation – you do get to deduct the 7.65 percent employer portion from your income taxes.

If these aren’t enough deductions for you then download my 33 Most Overlooked Tax Deductions You Need to Know cheat sheet with a special bonus Most Often Overlooked Tax Credits You Need To Know

Fun Money Mom
ConvertKit

Log In

Enter your login credentials

Email Address
Password

Forgot your password?

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Overlooked Tax Deductions

Overlooked tax deductions cause you to leave money on the table. Don't leave any money on the table. Make sure that you are taking every deduction you are entitled to.

Year’s ago, I used to do my own income taxes. It was simple enough, so I thought. I had my two dependents for my earned income tax credit, Back in those day’s that is all I was concerned about, that coveted earned income credit. I had a job that didn’t pay very much, so that earned income tax credit really helped to boost my refund. Fast forward a few years and a few more children/dependents, my tax situation changed.

I went to a tax professional and as a courtesy, this person reviewed some of my prior year’s returns. Imagine my surprise when she told me I could file an amendment and receive even more money.  I had overlooked a few tax deductions, that ended up costing me a pretty penny. Some tax deductions and credits can get overlooked. Find out which tax deductions and credits you have coming to you so you’ll keep more money in your pocket.

Some tax deductions and credits can get overlooked, and I don’t want that to happen to you. Find out which tax deductions and credits you have coming to you so you’ll keep more money in your pocket. Making sure you receive every tax deduction and credit you have coming to you is one of the best ways to ensure you don’t leave any money on the table during tax time.

Overlooking deductions can cost you money, that goes without saying. What is to blame for missing these potentially valuable deductions? There are a variety of reasons, including last-minute filers and those who don’t read the ‘what’s new’ section of the instructions. I was one of those who didn’t read the what’s new section. Reading is so fundamental.

Some often-overlooked deductions will help you keep on top of your taxes so you can minimize your tax bill and, possibly, maximize your refund. Many of these deductions must exceed a certain percentage of your adjusted gross income to yield tax savings.


Working for yourself

If you work for yourself, there are various costs involved in running your own business from a home office. These costs can be legitimate and valuable deductions. Taxpayers who operate businesses from home may always deduct the portion of household expenses related to the space used exclusively as a home office. However, the deduction is often left off the tax form because the taxpayer is afraid it will lead to an audit.

This fear probably is unfounded. The IRS does not release statistics on its home office audits. Taxpayers who meet the requirements for a home office deduction should claim it. Just make sure you keep good records to support your claims. Costs such as high-speed Internet access and other expenses related to your computer are legitimate. So are car expenses and anything used exclusively for the business as long as they are attributable to your business and office space.

Working for someone else

Another category of deductions often forgotten is unreimbursed employee business expenses. If your employer allows you to telecommute from home, for example, you may deduct part of the household expenses related to a space used exclusively as a home office.

Employees must show that they work from home for their employers’ preference and not their own convenience.

One of these overlooked off-site working deductions is the cost of going from your home office to another work location. People also frequently forget to deduct expenses related to business. Anything required for work may be deductible, including the use of a personal vehicle for business, tools you have to buy to do a job, and work clothes. Any clothes you deduct must be only for work; if they’re suitable for non-work situations, you can’t claim them as a work expense. So don’t try to claim that cute little romper you bought for you weekend getaway. Even if you did wear it to work.

Don’t forget about job-hunting expenses. Costs for resume preparation, mailing resumes, and travel for job interviews are deductible as miscellaneous itemized deductions.

Educational expenses

The most lucrative overlooked potential deduction is the Higher Education Expense Deduction. This deduction allows a married couple to write off up to $4,000 a year in qualifying higher education costs, mostly tuition.

The income limits for it are higher than for the education credits. Some people who do not qualify for the credits can still take the deduction.

Another forgotten education deduction is the popular 529 plan for college savings, which is deductible on many states’ tax returns but not on federal returns.

Medical expenses

Taxpayers who itemize medical costs not covered by insurance need to check what the IRS has characterized as “qualified medical expenses” for that tax year.

Past qualified expenses include:

  • hormone therapy
  • sex reassignment surgery for someone afflicted with gender identity disorder
  •  batteries for hearing aids
  • fertility treatments are also deductible.

These treatments are expensive and will help in meeting the 10 percent of adjusted gross income threshold.

Worth exploring

Personal property taxes on vehicle registrations, often called ownership taxes and prior ownership taxes, are deductible, although they may be called by different names in different states.

Many taxpayers don’t know about the saver’s credit, also known as the retirement savings contributions credit. This helps offset part of workers’ contributions to their IRAs, 401(k) plans and similar workplace retirement programs.

They also might not know that they may deduct alimony payments, but not child support payments.

Taxpayers who do volunteer work for a charity may deduct unreimbursed expenses, including the cost of the use of their personal vehicles.

Don’t get discouraged. Just because you didn’t qualify for a deduction one year doesn’t mean you won’t qualify for it the next year. Many deductions are limited by your modified adjusted gross income, but the limits for some deductions may be adjusted annually based on inflation.

Tax time can bring loads of anxiety for many people. You never know how this information may benefit someone. Please feel free to share with your tribe, by clicking one of the share buttons below.

Facebooktwittergoogle_plusredditpinterestlinkedinmail

How The Savvy Woman Stretches Her Tax Dollars

When it comes to our finances, I know all women consider themselves to be savvy. And because we are women, we are absolutely correct! We are savvy!. Women can take fifteen cents and turn it into a million bucks if we put our mind to it. I love being a woman! I love being a financially savvy woman!

 

When it comes to our finances, I know all women consider themselves to be savvy. And because we are women, we are absolutely correct! We are savvy!. Women can take fifteen cents and turn it into a million bucks if we put our mind to it. I love being a woman! Do you know what I love more than being a woman? I love being a FINANCIALLY SAVVY woman.

It’s all well and good to stretch that paycheck, but what I want us to do, as women, is stretch those tax dollars. Once upon a time, I was that woman that took her tax refund and went shopping. My children and I were what was called hood rich. That was until I learned better. I learned how to stretch my tax dollars and maximize my refund. I learned how to build wealth. Now that is what you call savvy.  In honor of Women’s History Month, and in keeping with this month’s theme, reader request tax series. I’m going to show you just how I used smart tax strategies to stretch my tax dollars.

Smart tax strategies will stand the test of time. As tax season bears down upon us, here are some reliable and long-term tax strategies that will help you obtain as many tax breaks as possible. It may be too late to use these strategies for this year’s taxes, but certainly, you can start applying them now to enjoy the benefits next year.

Do me a favor. Click to tweet below please.

Max Out Your Retirement Account Contributions

According to the US Department of Labor, 39% of female workers are covered by private pension plans, compared with 46% of male workers. When retirement time comes, 32% of female retirees get pension benefits, compared with 55% of men. Add to that the sad fact that a woman still earns only 79 cents for every dollar a man earns, and the conclusion is obvious. As with everything else, if we want it done right, we’re just going to have to handle this ourselves. How? Contribute, contribute, contribute!

Fortunately, the IRS has made it easier to build a successful retirement stash. Each year the deductible amount you can contribute to a retirement account is increased for inflation, and there are catch-up contributions for those 50 or over. Do the best you can to contribute the maximum deductible amount so that this money can grow tax-free until you reach retirement. The IRS can’t save for you — the rest is up to you.

Start Saving for College Costs

Women face a double whammy when saving for our children’s education. How can you pay for the $100 sneakers now and still set aside enough money to pay the staggering cost for college later? The fact of the matter is, unless you are as rich as Beyonce, you can’t.
Section 529 plans allow taxpayers to set aside money to grow tax-deferred, which can be taken out tax-free to pay educational expenses. This means that your money grows without taxation every year, and you don’t pay taxes when it comes out either. How’s that for being savvy?

Parents, grandparents, or anyone else who meets the applicable income restrictions may also contribute up to $2,000 per child per year to a Coverdell Education Savings Account (ESA). Children can also contribute to their own accounts. These accounts can be used to pay for private elementary and secondary school expenses as well as college expenses.

There’s hope — the Hope Credit, now renamed the American Opportunity Tax Credit. It amounts to 100% of the first $2,000 of a college student’s annual tuition and fees (no room and board costs) plus 25% of the next $2,000. So the maximum credit is $2,500 per qualifying student per year. The American Opportunity Tax Credit can be claimed for four years for any one student and it is allowed only when the student carries at least half of a full-time load for at least one academic period during the year.

The Lifetime Learning Credit is less restrictive. This credit is available for an unlimited number of years and without any requirement to carry a certain course load. You can also get credit for graduate courses and non-degree courses, such as professional training seminars and courses to update your computer skills. The credit is up to $2,000 per student for all qualified education expenses.

Eligible taxpayers can also deduct up to $4,000 in education expenses “above the line” (meaning you need not itemize to get the break), subject to income limitations. By the way, if you are considering going back to school yourself, keep in mind that your employer can reimburse your tuition up to $5,250 tax-free. Graduate school courses can be covered in addition to undergraduate courses.

Take All the Deductions You Can for Your Children

From diapers to piano lessons to all the extra food you need to stock for growing bodies, children are expensive! Fortunately, the government gives you a few financial tax breaks for being a parent. Make sure you take advantage of all of them! First, there’s the $1,000 tax credit for each qualifying child, in addition to each dependent’s personal exemption. Don’t forget to take this credit. It’s like receiving $1000 tax-free in your pocket, as long as your income doesn’t exceed the limitations.

 

Do you pay a babysitter or daycare center so you can work or go to school? The child and dependent care credit will cover up to $3,000 of qualifying expenses. If you have two or more qualifying dependents, you can claim the credit for up to $6,000 of expenses. For all but very low-income taxpayers, the new rules translate into a maximum $1,050 annual credit for one qualifying dependent or $2,100 for two or more dependents.

If you have your own business, employ your children at a fair-market wage and deduct your payments to them. That sure beats an allowance!  Help them get started with their own savings by setting up IRAs for them for $5,500 per year or up to their earned income, whichever is less.


We women are savvy and resourceful. Using the tax strategies above can help next year’s April be a little bit sweeter than this year. Before I go, let me ask you one question. What will you do to stretch your tax dollars and make them work for you?

If you have found this article helpful, please share this with other savvy women. It can be your gift to them for Women’s History Month.

 

 

 

Disease Called Debt
Facebooktwittergoogle_plusredditpinterestlinkedinmail

Maximize Your Tax Refund

 

Does your preparation for tax day start with a trip to the liquor store, or perhaps a one-way ticket to Costa Rica? Taxes are unpleasant, but drinking or fleeing the country is not the answer. Tackle your taxes head-on with solid preparation, and the experience may turn out to be more pleasant than you thought it would be. Here are a few tips to help you with your tax preparation and to maximize your tax refund.Does your preparation for tax day start with a trip to the liquor store, or perhaps a one-way ticket to Costa Rica? Taxes are unpleasant, but drinking or fleeing the country is not the answer. Tackle your taxes head-on with solid preparation, and the experience may turn out to be more pleasant than you thought it would be. Here are a few tips to help you with your tax preparation and to maximize your tax refund.

1. Start Immediately – Procrastination is just going to make things worse. Pressure will increase as tax-filing day draws nearer, and it is more likely that you will have problems finding vital paperwork or will make mistakes filling out your form. Get started on your taxes as early as you can and gather some positive momentum.

2. Organize Your Paperwork – Hopefully, you have been storing and organizing important tax documents and necessary receipts throughout the year — but if so, you probably would not be reading an article about how to prepare for tax day.

Start by gathering the basic tax documents. Last year’s tax return, W-2 forms, 1099-MISC forms for any independent contracting work, other 1099s forms for things like bank accounts and brokerage statements, and 1095 forms to prove health insurance status. After securing all the basic documents, move on to receipts for all itemized deductions. Speaking of deductions….

3. Explore Deductions – You may not even realize how many itemized tax deductions that you have, and simply assume the standard deduction is the best choice. Review the instructions for Schedule A and IRS Publication 529, “Miscellaneous Deductions” to see all the options available to you.

Do not forget about “above-the-line” deductions like educator expenses and health savings account (HSA) deductions. You can take those deductions whether you itemize or not.

4. Max Out Your Retirement Contributions – Even though it is now 2017, you can still make contributions to your IRA until the tax-filing deadline in April and credit those contributions to your 2016 taxes — as long as your contributions for the year stay within the $5,500 limit ($6,500 if you are over fifty years old). Schedule your retirement contributions in a way that brings you the greatest tax advantage.

5. Consider Tax-Preparation Software – Do you prefer to file your own taxes? You may want to consider tax preparation software. It can help you avoid potential errors and identify other sources of deductions. Software is available in a wide range of capacities that can match the complexity of your tax situation. Prices are generally reasonable. If you made below $64,000 last year, you can prepare your taxes for free using the Free File tax preparation software available on the IRS website.

6. Seek Professional Assistance – Complex tax situations are best left to the professionals. You may be able to do your own taxes adequately, but that does not mean you should. A competent tax professional may be able to find you enough refunds to pay for their services and then some. Even if they cannot, you can enjoy greater peace of mind by not having to struggle through the tax forms yourself.

Research a tax professional carefully! Do not just choose one based on advertising (certainly not on promises of the highest refunds). Check their certifications, experience, and online reviews of their services. Note that lawyers and accountants may be qualified to sign tax returns without having any experience in doing so.

 

Facebooktwittergoogle_plusredditpinterestlinkedinmail

What Can I Do With My Tax Refund Check?

In this post I share what you can do to flip your tax refund and make it grow
Tax Time Is Here

 

 

We are in full-fledged tax season. I had a reader request a series on how you can invest your tax refund and make it grow. About a year ago, I hosted a webinar called Flip My Refund. To start this series off, you can view that webinar here. Don’t forget, if you have a personal finance question that you would like answered, you can send me an email at tracie@traciebthreadford.com Your question may be answered on the blog, but you will remain anonymous.

If you haven’t already, be sure to subscribe to my you tube channel!

 

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Save For Unexpected Events With A Financial Capability Fund

A financial capability fund consists of a small amount of money, usually in a savings account, that you do not have easy access to. Saving for this fund starts with small, regularly scheduled contributions that build up over time.

Saturday, March 4: Save for Unexpected Events

  • A financial capability fund consists of a small amount of money, usually in a savings account, that you do not have easy access to. Saving for this fund starts with small, regularly scheduled contributions that build up over time.

I don’t particularly like to call them emergencies. Things happen, it’s as simple as that. Most personal finance experts call them emergency funds, but I call them capability funds. You must be capable of handling anything that comes your financial way. Hence, the financial capability fund.

First, let’s define a financial capability fund. A financial capability fund is cash that you’ve saved for the sole purpose of helping you maintain your normal life through curve balls that life throws at you. Most of the time, you shouldn’t touch the money in this fund. It is supposed to sit there earning a bit of interest and waiting until you actually need it. Times like when you lose your job, an appliance breaks down or your car needs a repair.

Quite often, people who don’t have a capability fund see the idea of having to save up money as some form of punishment.  After all, money put in a savings account and locked away is money that can’t be used to live, right?

Actually, it’s quite the opposite. Having a capability fund means that you do have room to breathe. You don’t have to completely panic if your car breaks down or if you lose your job or if you suddenly need to replace a hot water heater. Instead of having to find some way to squeeze those expenses onto a credit card or beg a friend for some money to help, you can just pay the bill – no worries.

Another problem that I often hear about when it comes to capability funds is the temptation that people have to spend the money on things that aren’t considered unplanned events. They see that they’ve built up several hundred dollars in savings and they start thinking about buying a flat screen television or going on a trip – and that’s just what they do.

If you want to have a savings account for big splurges, that’s great – start a “splurge fund,” too, if it makes sense for you. It’s important, though, to just leave the capability fund completely alone until you need it. Deposit money in there and don’t even look at the balance until a real unplanned event occurs.

First Steps with Capability Funds


Set Your Initial Target Low

So, what’s the first step? Many people bite off a gigantic goal for their capability fund right off the bat and then find that it’s very hard to get there. Twelve months of living expenses is an enormous goal, one that will take some time to reach – and along the way, you’re bound to get disheartened.

Instead, one great way to start is to set a goal that’s more reasonable. Make it your initial goal to have a capability fund of just $250 or $500. That’s a goal that you can reach in just a few months (or even less if you’re in a good income situation) and yet it’s an amount that can make a huge difference when you have an emergency.

Then, break that goal down into smaller pieces. Perhaps you can save $25 a week. If that’s the case, you can have a $250 emergency fund in just ten weeks, so you can set that as your overall goal. Maybe you can put away $40 a week, which would bring you to the $500 goal in three months.

My advice is don’t set your savings plan too high at first, either in terms of the amount you can save each week or the overall amount. It should challenge you just a bit, but not be a number that’s simply unreachable.

Find Your Breathing Room

“That’s great,” you’re thinking, “but where am I going to come up with $25 a week? I barely make ends meet now.”

That’s a pretty typical sentiment from people who are just beginning to turn their financial situation around. There are a lot of ways to come up with extra money throughout the month.

Ways to Get Your Capability Fund Started


Request a rate reduction on your credit cards

If you’re carrying a credit card balance, getting your interest rate reduced will directly save you money each month. Just flip over your credit card, call the number on the back, ask to speak to a supervisor, and simply request that the rate be reduced. Suggest that you’re considering transferring your balance off of the card.

Shop around for better auto insurance and homeowners insurance

Try Progressive, Geico, American Family, State Farm, and AIG, for starters. Just visit their websites, get some quotes, and make a switch.

Install a programmable thermostat – and program it

Pretty simple, actually – it just takes thirty minutes or so and will cut your cooling and heating bill by 20 or 30 percent. Set it so that the air conditioner and/or furnace don’t run while you’re sleeping or at work so that the energy isn’t wasted when no one is around or awake to enjoy it.

Use a list for grocery shopping

Ten minutes of planning before you go will save you at least ten minutes in the store, plus it will help you stay focused on the stuff you actually need, This will ultimately reduce your grocery bill because you’re putting less unnecessary stuff in the cart.

Transform one splurge a month

Instead of going out for an expensive dinner once a month, turn that dinner into a meal prepared at home. You’ll save quite a bit even if you prepare something very fancy in your own kitchen.

Set up a carpool

Find someone that lives fairly close to you that works where you do and start carpooling together. Even if you can only do it a few days a week, you’ll still drastically cut down on your commute costs, plus it will be a lot harder to stop for those impulse splurges.

Use public transportation

Even better, get in the habit of using public transportation for your commuting needs. Most metropolitan areas have surprisingly good public transportation options – and they’re far cheaper (and not all that much more time consuming) than driving yourself.

Get on the bike

Want to start getting in better shape? Only live a mile or two from your job? That’s a perfect situation to get a bike and start using it for the commute instead of wasting your dollars on gas and car maintenance.

Trim unnecessary monthly bills

Are you subscribing to Netflix but rarely using it? Cut it! Are you paying for premium cable channels that you never watch? Trim them!

Snowflake

Quite often, when people come into a bit of unexpected money, they tend to spend it without thinking about it. They decide not to stop for coffee, but then choose to spend it later, on take out, for example. Instead of spending that “found money,” take some or all of it and immediately put it into your capability fund. If you have online banking, that’s pretty easy – just transfer it out of your checking account.

The key thing here is to actually save this windfall. Instead of just spending the money on something else, put that money away towards your capability fund. If you find that you’re actually saving more than $50 a week with these tactics, then put more into the capability fund or increase the amount you’re putting into your retirement savings.

Make It Automatic

So, you’ve trimmed $50 a week from your spending, but now you have this cash sitting there and it’s tempting to spend it on something more exciting than a capability fund. You’re tempted…

… but you don’t have to be tempted. Instead, you can set up an automatic savings plan to sweep that money straight out of your checking account and into your savings account that you’re using for a capability fund.

If you haven’t already, I recommend setting up an online savings account at a bank separate than the one you normally do business with for your capability fund. Doing this not only lets you shop around for a bank with good service and good savings account rates, but it also causes you to put the money in a place that’s not quite so easy to access. You can’t just run to the ATM or stop by the teller window and withdraw cash from it – you have to go to your computer, order a transfer, and wait for a day or two to access the cash, which is more than enough time for you to think carefully about what you’re doing and not get sucked in by impulse.

Set Reasonable Milestones Along the Way

In a few months, you’ll hit that first milestone – and it’ll feel good. That account will have enough money in it that it’ll start earning a bit of interest on its own and you’ll start to feel in control of the situation.

Now’s the time to keep going. Set another goal. Maybe a fund of $1,000. Keep that automatic savings plan in place.

Once you reach that goal, aim for a single month’s worth of living expenses. Then two months. Then three. And just keep watching that financial capability fund grow.


Obviously, when you do have an unexpected event tap that fund. Don’t put your car repair bill on the credit card. Don’t start living on plastic while you’re between jobs. Instead, keep living a financially stable life thanks to your planning ahead.

You might just find this is a lot of fun – so you might start seeking out more ways to save. Just keep setting goals for yourself and keep pushing yourself just a little to make it there.

Before you know it, life won’t be disrupted by these kinds of events. You’ll sleep a lot better at night knowing that.

You can find more way’s to overcome unexpected expenses that thwart efforts to save here.

Do you have any tips or tricks you can share to save money and build a finanical capability fund? If so drop them in the comments below, I’d love to hear from you!

Facebooktwittergoogle_plusredditpinterestlinkedinmail

Pay Off High Interest Debt

With planning, discipline, patience, and maybe some outside help, almost anyone can reduce their debts and start to accumulate wealth. Find places to cut your spending so that you can pay down your debts faster and find places to trim your expenses. Pay off high interest debt today

Friday, March 3: Pay Off High-Interest Debt

  • With planning, discipline, patience, and maybe some outside help, almost anyone can reduce their debts and start to accumulate wealth. Find places to cut your spending so that you can pay down your debts faster and find places to trim your expenses.

 

Debts that accrue interest over time can deal a major blow to your savings. But with planning, discipline, patience, and maybe some outside help, almost anyone can reduce their debts and start to accumulate wealth.

Although we’re coming to the end of America Saves Week, there are still actions you can take this week to improve your financial picture. Find places to cut your spending so that you can pay down your debts faster and find places to trim your expenses.  About a month ago, I conducted a private masterclass called DEATH TO DEBT. In this class, I showed the participants the most effective way to pay off their high-interest debt and begin building wealth. You can view that class here.  For now, here are five effective way’s you can begin paying off high-interest debt.

 

Create a budget

Establish a budget that includes your monthly income and expenses. Then take a look at those categories and see where you can cut costs.

Stop your credit card spending

If you really want to stop accumulating debt, then stop your credit card spending. Take those credit cards out of your wallet and leave them at home. Better still, cut them to pieces. I know that’s drastic, but sometimes we have to take drastic measures to obtain financial freedom. Stop spending with those credit cards until you have your finances under control.

Put work bonuses toward your debt

Do you receive a bonus from your job? If so, throw it at your debt instead of using it as an opportunity to splurge. It is more important to fix your finances than to own the latest whatever.

 

Change your habits

I’m willing to bet, if you look at how you spend your money each day, week or month, you will see that your daily routines and habits got you into this mess. Spend a little time reflecting on those purchases and see what you can either cut back on or do without. Instead of that hight priced latte every day, make your own at home. How about brown bagging your lunch instead if eating out each day. Watch how much money you will save and how much you can throw toward that debt.

Earn extra income

Turn that side hustle into a lucrative business. What skills do you have that you can turn into some extra cash? My side hustle is selling and doing makeup. I also do graphics for a few of my friends. You would be surprised how much your talents can earn you.

What other tips can you give for paying off debt? Comment below and let me know. I’m always looking for more tips and trick to add to my arsenal.

Facebooktwittergoogle_plusredditpinterestlinkedinmail

1 2