- The paperwork you need to have is based on your personal finances and will vary from year to year based on life changes school
- having a baby
- business ownership
- charitable donations
- day care expenses
- energy efficiency improvements
- contributions to 529
- job search expenses
What are some commonly overlooked tax credits?
As a frequently overlooked tax credit, 1 in 5 of those eligible is not claiming the Earned Income Tax Credit. Low-income workers may be eligible for this credit (maximum credit of $487 to $6,044) based on the number of children they have and if their income is below specific requirements. Because eligibility isn’t static – financial, marital and parental changes can cause a taxpayer to be ineligible one year and eligible the next – many taxpayers may not realize when they qualify.
Also some Higher education tax breaks can help parents manage college costs, but these are frequently overlooked:
- The American Opportunity Credit was extended through 2017, allowing taxpayers to claim up to $2,500 for the first four years of college education for each student.
- The tuition and fees deduction (expired Dec. 31, 2013, but can be claimed on 2013 returns) provides a reduction in taxable income of up to $4,000 per tax return.
- The Lifetime Learning Credit is worth up to $2,000 per return for post-secondary degree programs or courses taken to acquire or improve job skills.
Every year there seems to be changes to the tax code. Are there any that are creating confusion?
There has been an average of more than one tax code change a day for the past decade. Following are some changes that went into effect in 2013:
- Only medical expenses that exceed 10 percent of adjusted gross income (7.5 percent for taxpayers 65 or older) may be deducted.
- A special safe harbor deduction allows taxpayers to take a home office deduction of up to $1,500, depending on the square footage of the office, without the need to save receipts to calculate relevant home expenses.
- The additional Medicare tax is applied to earned income (including self-employment income) and increases the Medicare tax paid by 0.9 percent for compensation that exceeds $250,000 for those married filing jointly ($200,000 single and $125,000 MFS).
- The new net investment income tax is applied to capital gains from the sale of stock, dividends and investments. Taxpayers with net investment income whose filing status is married filing jointly with modified adjusted gross income exceeding $250,000 ($200,000 single and $125,000 MFS) could be subject to the tax.
Is there a credit for childcare?
If you pay for daycare while you work, you can take a tax credit on eligible daycare expenses up to $3,000 for one child and $6,000 for two or more children. Also, don’t forget to consider your employer’s flexible spending plan, which could mean even more tax savings. Contributions to a flexible spending plan are not subject to income tax.
What does “head of household” mean?
To qualify to file as head of household, a tax payer has to be either unmarried or considered unmarried on the last day of the year. Also, a qualifying person must have lived in the home for more than half the year – unless the qualifying person is a dependent parent. Finally, head of household status requires paying more than half the cost of keeping up the home.
Taxpayers really need to make sure they're doing everything they can to get all the credits and deductions they're entitled. See your tax professional to make sure you're getting the money you're due. Even if you have already filed this year, H&R Block Tax Professionals will take a look at your return to ensure that is was done correctly - for free.
Visit www.HRBlock.com for more information and to find an expert near you!