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Category: Tax Deductions and Credits

Deductions and credits may be similar but they are far from identical when it comes to your tax return. A tax deduction is a qualifying expense that decreases your taxable income. On the other hand, tax credits allow taxpayers to reduce their tax due to the IRS, dollar-for-dollar. You subtract the amount that the credit is worth from your tax liabilities. If you had to compare the two, a tax credit is more valuable on your tax return. Want to learn more about different credits you are eligible for or tax expenses you can claim? PriorTax tells you about expenses you can claim.

Archive for the ‘Tax Deductions and Credits’ Category

What is a 1098-T Form?

Posted by Manisha Hansraj on February 27, 2019
Last modified: February 28, 2019

1098-t

Unfortunately, education isn’t free for some students.

If you’re a college student, parent, guardian or anyone paying out-of-pocket for tuition, fees, and required course materials needed for enrollment, you will receive a Form 1098-T. This tuition statement form reports all of your transactions, which means the payments you make to your school.

What does a 1098-T statement look like?

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How are Charitable Deductions Affected by the TCJA?

Posted by Manisha Hansraj on November 27, 2018
Last modified: November 27, 2018

Generosity has its perks, or rather its tax benefits.

Keep in mind, taxpayers are able to easily itemize once they exceed their standard deduction. This typically happens by taxpayers claiming charitable donations along with any expenses they have. It then becomes greater than their standard deduction. However, the standard deduction is twice the amount for 2017.

Due to the Tax Cuts and Jobs Act (TCJA), taxpayers who itemize may face some difficulties next year.

Read on to find out what you can do to be prepared for next year!

“Bunching,” a word that people can’t stop talking about.

If you’re surfing the web for information on charitable donations, you might run into the term, “bunching.” It may be confusing, so we’re here to clear it up for you. (more…)

Student Loan Interest Deduction Income Limit

Posted by admin on December 15, 2016
Last modified: December 16, 2016

Strapped for cash as a recent grad? See if you qualify for a student loan interest deduction.

College is over and you’ve been blasted with a taste of reality…or should I say adulthood? It’s tough but you’ll get through it. Even the IRS is on your side with certain deductions available to those of us who used our after-high school lives to pick up a college education. College is expensive. The student loan interest deduction can help you out a bit. Let’s see if you’re eligible.

Are there income limits?

Here are the income limits that apply to the student loan interest deduction. Note that prior tax years have slightly different income limits:

Single filers with a modified adjusted gross income (MAGI) below $80,000 and married couples filing jointly with incomes below $160,000 can take the full deduction.

Taxpayers whose MAGIs are above these limits can only take a reduced deduction or no deduction at all. The deduction phases out between MAGIs of $65,000 and $80,000 for single filers. For married couples filing jointly, the deduction phases out between MAGIs of $130,000 and $160,000. (more…)

Itemized Deductions vs. the Standard Deduction

Posted by admin on November 29, 2016
Last modified: January 5, 2017

What is the difference between claiming the standard deduction and itemizing deductions?

In general terms, a deduction is a certain amount you are allowed to exclude from your income. This means that you are taxed on a lower amount of income, and thus pay less in taxes. While not as valuable as tax credits – which directly decrease your tax liability – deductions can still reduce your tax burden significantly.

There are two ways to claim deductions.

  1. Itemize deductions. Add up all of your allowable expenses and subtract them from your income.
  2. Claim the standard deduction. Deduct the basic amount available to everyone.

While preparing your taxes you need to figure out whether you get a bigger tax break from itemizing your deductions or claiming the standard deduction. Most people end up claiming the standard deduction, but some people have enough allowable expenses to make it worth their while to itemize deductions.

The Standard Deduction

The standard deduction is a fixed dollar amount that reduces the amount of income on which you are taxed. The amount of the standard deduction depends on your filing status and whether you can be claimed as a dependent on another return. For the 2013 tax year, for example, the standard deduction is
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Can I Deduct Overlooked Expenses from Previous Years on This Year’s Taxes?

Posted by Michelle O'Brien on October 26, 2016
Last modified: December 21, 2016

Lumping overlooked tax deductions in with this year’s return is hardly an option.

Generally speaking, you cannot deduct expenses from a previous year on this year’s tax return. You can only deduct expenses in the year that you paid for them.

Each tax return reports finances for its own year and each of those years needs to be kept separate. Deductions, income or anything else from a previous year cannot be claimed with the current year’s tax information.

*Note: One of the exceptions to this rule is the tuition and fees deduction. This tax break allows you to claim qualified education expenses from the previous year as long as they were for school sessions that began in January-March of the tax year you are currently filing for.

File an amended return if you can

If you’re completely gung ho on finding a Plan B, we may have a solution for you. You can file an amended tax return if you discover a tax deduction you missed in a previous year. What’s the catch? It needs to be a completely legitimate expense. On top of that, it needs to be within the three-year time frame from the deadline date the original tax return was due.

To file an amended return, here’s what you should do: (more…)

Can I Still Claim the Making Work Pay Tax Credit?

Posted by Michelle O'Brien on February 25, 2016
Last modified: November 2, 2016

Tax credits are the IRS’ way of saying ‘Thanks’!

Even if you’re behind on filing past tax returns, it’s important to take your time and file each one accurately. Sure, in some cases you won’t be able to claim your refund after a certain period of time has passed but you can always reduce your tax liability. That’s what tax credits are for.

For the 2009 and 2010 tax years, there was a tax credit known as the Making Work Pay Credit. Did you know that you can still claim this credit on your tax returns for those years? Let’s find out if you qualify.

 

What is the Making Work Pay Tax Credit?

You might remember President Obama focusing in on the Making Work Pay Tax Credit as a key policy of his 2009 stimulus package. It was meant to initiate more household spending among families in the U.S. Well, it stuck…for a couple years at least. The credit was authorized in the American Recovery and Reinvestment Act of 2009. Many taxpayers saw a reflection of this credit as an increase in their paychecks throughout the year.

 

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Who Qualifies for the Child Tax Credit 2014?

Posted by admin on January 12, 2015
Last modified: January 26, 2015

If you meet the requirements to claim the Child Tax Credit 2014, your tax bill may reduce up to $1,000 per child.

Ever since entering the world, your child hasn’t stopped growing and learning. Along with that comes new clothes to buy, weekly visits to the grocery store, the obnoxious costs of summer camp, and of course, the endless dance, karate, and art classes!

As a parent, you understand more than ever before, that every dollar counts. Luckily, the IRS gives a few tax advantages to parents, including the Child Tax Credit.

However, you should note that just because you have a child, it doesn’t mean you qualify to claim the Child Tax Credit. You’ll need to meet the seven requirements. 

Wondering if you make the cut to claim the extra money when filing your 2014 Taxes?  If you meet the seven tests below, you’ll qualify to claim the Child Tax Credit.

1. Age Test

At the end of 2014, your child must have been under the age of 17- so 16 years or younger.

2. Relationship Test

In order to claim the child tax credit, the child must be one of the following;

  • your child
  • your stepchild
  • a foster child placed with you by a court or authorized agency
  • an adopted child (even if the adoption is not final by the end of the tax year)
  • your brother
  • your sister
  • your stepbrother
  • your stepsister
  • your niece
  • your nephew
  • (more…)

What are the limits on deductions for charitable contributions?

Posted by admin on December 23, 2014
Last modified: October 6, 2016

It’s great to give but don’t expect all of it back from the IRS!

If you plan on deducting a charitable contribution on your tax return, you’ll want to keep in mind that the IRS places limitations on how much you can actually write off.

Generally, you’ll be able to deduct charitable contributions up to 50% of your Adjusted Gross Income (AGI). However, this is not always the case.

In fact, depending on the organization you donated to and what you donated could alter this limit to 30% or even 20% of your AGI.

If you want to receive the maximum refund possible, learn the limitations before donating. Then, when it’s time to file your taxes, PriorTax will do the calculations for you!

50% Limit

The total amount of charitable contributions you can deduct on your taxes cannot exceed 50% of your Adjusted Gross Income.

In other words, if you made $80,000 during the year, then you’ll be able to include up to $40,000 in contributions in the deductions section of your tax return.

However, not everything you donate nor every organization you donate to is included in this 50% limit. Before donating to a charity, you may want to ask the organization if they are an IRS Qualified Charity and whether or not they’re considered a “50% Limit Organization”.

If they fall into both categories, you’ll be able to deduct up to 50% of your income in cash contributions you made to the organization. (more…)

Can I Deduct Donations Made to Any Organization? | IRS Qualified Charities

Posted by admin on December 18, 2014
Last modified: September 22, 2017

Contributions to Tax-Exempt Organizations aka “IRS Qualified Charities” are Tax Deductible

If you itemize your deductions (rather than taking the standard deduction), your donations are tax deductible. Don’t get too excited though, you’ll only be able to deduct contributions made to qualified charities and organizations.

Not sure what organization to donate to this year? We’re here to help clarify what types of charities are IRS qualified to lower your taxable income.

Then, once you’re ready to prepare your tax return, we’ll guide you through filing your taxes!

How Do I Know if a Organization is Qualified Tax-Exempt?

If you donated (or plan on donating) to a specific organization, you may be unsure if you’ll be able to include the generosity on your tax return.

Luckily, the IRS has a search tool on their website, allowing you to enter the organization’s name and location to find out whether their considered an “exempt organization” and tax deductible.

In order to deduct a contribution, the organization will either need to;

  • have a  501(c)(3) tax-exempt status (obtained from the IRS)

  • be a church or religious organization (more…)

How To Deduct Donations as Charitable Contributions

Posted by admin on December 15, 2014
Last modified: October 20, 2015

Did you make a donation this year? Here are a few tips for claiming it on your tax return.

What’s better than getting a larger tax refund from your tax return? Giving to a good cause.

In fact, WebMD.com’s article “The Science of Good Deeds”, explains that giving to others not only gives something called a ‘helper’s high’, but it also leads to a longer, healthier life.

What’s better than giving to others while also receiving a larger tax refund? Not much.

Before you start spreading some donation love, you’ll want to first make sure you’re going about contributing the right way. Not everything you donate is tax deductible.

Tax Tip #1: Itemize your deductions to claim contributions

If you’re debating between taking the standard deduction or itemizing your deductions, if planning to deduct your charitable contributions you’ll have to pick the ladder.

Luckily, you won’t have to do the calculations by yourself. The RapidTax team will do the hard work for you.

Tax Tip #2: Donate to a ‘qualified charity’

If you planned on giving your mom a car for Christmas and counting it as a deduction on your taxes, you may want to reconsider. In order to deduct a gift, you’ll have to donate to a qualified charity. (more…)