In previous years, the deadline for filing your taxes used to be April 15th, but this year the deadline has been extended to April 17, 2018. This isn’t some kindness on the behalf of the IRS, but it is a technicality, as April 15th falls on a Sunday and the 16th is Emancipation Day – an observed holiday in Washington DC.
While you may have extra time to file, do you have everything in order to do so? If not, here are some things you need to know going forward this tax season.
You Can File For Free
The IRS is expecting approximately 90% of returns to be filed via e-filing. When you e-file and use direct deposit, you can rest assured that the IRS is going to get your return and you’ll receive your refund (if you’re among the 70% eligible for a refund, that is) much quicker.
The IRS has created a way where you can file your taxes for free, even if you make more than $66,000. You can access the IRS “Free File” here. There are also other programs such as TaxAct where you can file for free or for a very low fee if you have itemized deductions.
Are You Eligible for Tax Deductions?
Many people believe that you’re limited to what you can claim on your taxes. There are deductions available for families, individuals, entrepreneurs, and businesses that you may be able to claim. Examples of these deductions include:
· You can claim 1 child tax credit ($1,000) for each child (up to 17 yrs. old) to offset the cost of raising them.
· You can receive a tax credit if you hire someone to care for a child (up to 13 years old) or a dependent while you’re at work. This credit can amount up to 35% (or up to $3,000).
· You can claim an adoption tax credit to offset the cost associated with adopting a child. Things that you can claim include: adoption and attorney fees, court costs, travel and accommodation costs. The most you can claim to receive this credit for 2018 is $13,840.
· Low-income families can claim an earned income tax credit to reduce the amount of taxes owed. The earned income tax credit for 2018 is $6,444 for people filing jointly who have 3 (or more) children.
Homeowners can itemize their claim and include:
· Interest paid on mortgage
· Real estate taxes
· Mortgage points that equal 1% of loan
· Uninsured losses due to fire, flood, storms, earthquakes and theft
· Moving costs if moving 50 miles away
Individuals can claim:
· Healthcare expenses if it exceeds 10% of your AGI
· Education costs such as tuition (up to $4,000) and student loan interest (up to $2,500)
There are quite a few tax deductions that a business person can claim. Those who are self-employed and work from home can claim a portion of the home’s costs. This includes things like:
· Home Insurance
· Mortgage Interest
· Property Tax
· 100% of home renovation to accommodate your office
· Banking fees
· Travel and mileage
· Social security and Medicare taxes (Up to 50% of contributions made in a year)
· Health Insurance
Small Businesses can claim:
· Salaries and wages for employees
· Expenses for operating company vehicles
· Rent of a business property
· Repairs and maintenance
· Business insurance
· Advertising costs
When it comes to corporations, a resource on individual and business tax deductions created by Northeastern University’s School of Business, D’Amore-McKim noted that C corporations and S corporations can claim things like:
· Day to day expenses associated with running a business (payroll, rent, and even office supplies)
· Employee expenses like tuition reimbursement, vacations, awards and bonuses
· Travel expenses (bus, air, or train fees), but also entertainment, meal, and hotels are included.
· Insurance for workman’s comp, theft, public liability, and fire.
· Businesses can write off bad debts they cannot recover and claim them as a deduction.
Taxation of Riches
For those who come from wealthy families, you may be concerned about whether or not you have to pay taxes on any gifts or money and/or estates you inherit. There are three distinct federal transfer taxes that deal with this and they are the estate tax, gift tax, and the generation-skipping tax.
Estate Tax: If someone in the family passed away in 2017, the Federal estate tax exemption for each person who is to receive anything is $5.49 million. This means that someone can leave each of their loved ones $5.49 million before they have to pay federal taxes. However, if someone leaves their heirs $5.69 million, that $200,000 over $5.49 million becomes taxable.
Gift Tax: With the gift tax, you can give people gifts from your estate throughout your life, but those gifts go toward the $5.49 million exemption. Well, what is considered a gift? According to many tax experts, a person can give an heir or benefactor:
· Annual Exclusion Gifts – Annual gifts up to $14,000. This amount can be given to as many benefactors chooses without having an effect on their lifetime exclusion.
· Expenses are Paid as a Gift – This includes paying for medical, dental care and cost of tuition for any heirs and benefactors, only if they pay the provider themselves, instead of giving the money heir or benefactor.
· 529 College Savings Plans – Once every 5 years, a person can put up to 5 years of annual exclusion gifts into a 529 plan. With this “savings plan” there wouldn’t be any other gift tax taken over the next 5 years, that is bearing the benefactor didn’t receive any more gifts within those 5 years.
Generation Skipping Transfer Tax – With this tax, someone would leave their money to someone who isn’t related to them and they cannot be older than 37 and a half years old – or they are twice-removed or more to which they will be taxed at the highest federal estate tax rate.
An example of this is when a grandparent creates a trust fund for their grandchild whose parents are still alive. Or, someone skips their child and leaves all of the inheritance to the grandchild.
Tax season comes all too soon each year. This year, you have an extra day to file your taxes - they aren’t due until April 17th, 2018. While you may want to do your taxes as quickly as possible, take a few minutes (or hours) to consider the possible deductions you can take. By taking advantage of the deductions and credits available, you could be saving your family, your business, and yourself a lot of money!