Only 257 Days Until April 15 — Here Are Some Tax Tips You Can Use Now

Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

The year may be half over, but that doesn’t mean it’s not a good time to think about taxes. If you’re like most, you’re probably going to get a refund come April. The average refund is more than $2,000. That’s a lot of money for a lot of people. But can’t you make better use of it now?

Here are some tax tips to keep in mind… because even though April is eight months away, it doesn’t hurt to get a head start on things.

Tying the Knot

When planning the future together, discuss and plan for your financial future as well. Here are a few tips on your road to your golden anniversary.

You have a partnership. Make sure the two of you:

• Are aware of and comfortable with each other’s money personalities.
• Discuss your short- and long-term financial goals.
• Take an interest in your personal finance.
• Create a plan to structure your finances.
• Plan for the effect that marriage will have on your taxes.
• Decide how to divide up the money management tasks.
• Prepare a realistic budget.
• Openly discuss your investment personality and risk tolerance.
• Know how much debt your new spouse is bringing into the marriage.
• Discuss money on a regular basis.

Voluntary Withholding On Social Security Benefits

Did you know that you can use your Social Security benefits to meet your estimated and final tax liability by electing on Form W-4V [PDF] to have tax withheld from benefits at a 7 percent, 10 percent, 15 percent, or 25 percent rate?

Now you know.

Charities

Donate only to qualified charities. Check them out first. Some phony charities use names similar to known organizations. Be wary.

Don’t give your personal or financial information like your Social Security number or passwords. Don’t give or send cash — only contribute by check or credit card.

Nursing Home Expenses

A medical expense includes medical care in a nursing home, home for the aged and similar institutions for you, your spouse, or your dependents. Meals and lodging are also included if the main reason for being there is medical care. If the expense is yours, then only the cost for medical or nursing care is deductible, not the meals and lodging.

Work-Related Education Expenses

Tuition, books, supplies, transportation, and related expenses to improve or maintain your job skills are generally deductible, unless they qualify you for a new trade or business. Deductible would be a grammar school teacher taking courses to teach in high school, but not a tax preparer taking courses to be a business lawyer.

Additionally, you can only deduct expenses in excess of your job reimbursement, and you cannot deduct the education expenses more than once, meaning that you cannot claim the same expenses as a business expense and for the educational credit or tuition and fees deduction.

Amending Your Tax Return

Did you realize that you overlooked an item of income, or realized a deduction was not claimed? Did you receive a corrected W-2 or stockbroker form? Did you use the wrong filing status, or forget a dependent?

If any of these apply to you, then the amended tax return is your avenue to make it right. The IRS generally takes up to a year to inform you of overlooked or corrected income, and then bills you not only the tax, but interest and penalty.

On the other hand, if you missed a deduction, you will generally not be notified — you’ve just lost the money. A refund can be claimed within three years from the date the original return was filed, or within two years from the date the tax was paid, whichever is later.

Child Care Credit

If someone cares for your child while you are working, you get a credit of between 20 and 35 percent on the first $3,000 ($6,000 if more than one child) you spend. There are some rules you need to follow however.

• First, your child must be under 13 years of age. Keep in mind that any child care until age 13 qualifies. For example, if your child turns 13 after summer camp, that cost is allowed.
• Second, you will need the provider’s name, address, tax ID number, and a statement of the expense for each child.
• Day camp is allowed, even specialized day-camps like for soccer or computers.
• Overnight camp is not allowed. A tutoring program is not allowed.
• School expenses for a child up to kindergarten can be counted towards to credit.
• Final Note: This credit’s full name is ‘Child and Dependent Care Credit.’ This credit applies to anyone you claim as a dependent on your tax return, including parents.

Your Pet Can’t Write Checks

Set up a trust to pay for your pet’s expenses, and fund it considering what her expenses might be as she grows older, or just gets sick.

Tax Records Should Be Kept Until When?

Tax returns — and proof of filing — should be kept forever. There is no statute of limitations if you don’t file. Recently, New York State notified a client that their 1977 (yes, 1977) tax return was not filed.

Backup documentation for tax returns: Generally six to eight years is fine. However, you need to keep proof of the cost of an investment until six to eight years after you sell it. This applies to stocks, real estate, and personal items.

Tip: In this age of computers, scan your tax returns and backup documentation into your computer, and backup your computer to Carbonite.com or a similar company.

Student-Loan Interest Paid By Mom And Dad

Generally, you can only deduct mortgage or student-loan interest if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the money as if it was given to the child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to
$2,500 of student-loan interest paid by Mom and Dad. And he or she doesn’t have to itemize to use this
money-saver. Mom and Dad can’t claim the interest deduction even though they actually foot the bill since they are not liable for the debt.

Service Fees Are Not Deductible Points

You may not deduct as points amounts that are for specific lender services. To be deductible, points on the purchase of a principal residence must be prepaid interest for the use of the loan money.

Points Reported to the IRS

Points you paid in 2013 on the purchase of your principal residence will be reported to the IRS by the lender on Form 1098 if they meet the five tests for a deduction. Seller-paid points are also included on Form 1098. Form 1098 is used by the IRS to check on the deduction you claim for points on Line 10 of Schedule A. Points paid on an improvement loan for your principal residence are deductible on Line 12 of Schedule A if they meet the tests; they are not shown on Form 1098.

Form 1099-S For Sale Of Principal Residence

The lender or real estate agent responsible for the closing does not have to report the sale of your principal residence on Form 1099-S if:

• The sales price is $250,000 or less, or $500,000 or less if you are married filing jointly, and
• You certify in writing under penalty of perjury that you have met the tests for excluding from income the full gain on the sale.

Quip: The immigration bill that Sen. Charles Schumer and others supported is meant to “bring people out of the shadows.” If the illegal aliens are really in the “shadows,” why is it that the IRS has found them to the tune of more than $14 billion in refundable tax credits?

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.