Schrakamp, PLLC in Dallas, TX, Offers Tips to Help With You Taxes

Check Withholding to Avoid a Tax Surprise

The IRS withholding calculator on IRS.gov can help compute the proper tax withholding. The worksheets in Publication 505, Tax Withholding and Estimated Tax, can also be used to do the calculation. If the result suggests an adjustment is necessary, you can submit a new W-4, Withholding Allowance Certificate, to your employer.

If the changes involve another schedule or form, attach it to the 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Tax Credit, you must complete and attach a Schedule EIC to the amended return.

If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for the prior year, Form 1040X must be filed and the tax paid by April 15 of this year to avoid any penalty and interest.

You generally must file Form 1040X to claim a refund within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later. Please contact us for more!

Check that the Organization is Qualified.

Taxpayers must make certain that they contribute their car to an eligible organization; otherwise, their donation will not be tax deductible. Taxpayers can search Tax Exempt Organization Search to check that an organization is qualified. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization’s correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques and governments are not required to apply for this exemption in order to be qualified. Please contact us if you’re considering a car donation for your tax return!

Charitable Contributions

Your donations can add up to a nice tax deduction if you itemize deductions on IRS Form 1040, Schedule A.

Here are a few tips to help make sure your contributions pay off on your tax return:

You cannot deduct contributions made to specific individuals, political organizations, and candidates, the value of your time or services, and the cost of raffles, bingo, or other games of chance.

Contributions must be made to qualified organizations to be deductible.

Organizations can tell you if they are qualified and if donations to them are deductible. Taxpayers can also search the Tax Exempt Organization Search (TEOS) online tool to check that an organization is qualified. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization’s correct name and headquarters location, if possible. Churches, synagogues, temples, mosques, and governments are not required to apply for this exemption to qualify. Alternatively, contact us for more!

Refinancing Your Home

Taxpayers who refinanced their homes may be eligible to deduct some costs associated with their loans.

Generally, for taxpayers who itemize, the “points” paid to obtain a home mortgage may be deductible as mortgage interest. Points paid to obtain an original home mortgage can be, depending on circumstances, fully deductible in the year paid. However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.

For a refinanced mortgage, the interest deduction for points is determined by dividing the points paid by the number of payments to be made over the life of the loan. This information is usually available from lenders. Taxpayers may deduct points only for those payments made in the tax year. For example, a homeowner who paid $2,000 in points and who would make 360 payments on a 30-year mortgage could deduct $5.56 per monthly payment, or a total of $66.72 if he or she made 12 payments in one year.

However, if part of the refinanced mortgage money was used to finance improvements to the home and if the taxpayer meets certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid. Also, if a homeowner is refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at payoff.

Other closing costs — such as appraisal fees and other non-interest fees — generally are not deductible. Additionally, the amount of Adjusted Gross Income can affect the amount of deductions that can be taken. Please contact us if you’ve recently refinanced, and we can be a big help!

If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disaster resulting in a casualty to your home, or an involuntary conversion of your home. Send us a message for more!

Deductible Taxes

Did you know that you may be able to deduct certain taxes on your federal income tax return? The IRS says you can if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation. There are three types of deductible non-business taxes:

1. State and local income taxes or general sales taxes;
2. Real estate taxes, and
3. Personal property taxes
   

The Tax Cuts and Jobs Act (TCJA) limits the cumulative amount of the above taxes an individual can deduct in a calendar year to $10,000.

You can deduct estimated taxes paid to state or local governments and the prior year’s state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.

Deductible real estate taxes are usually any state, local, or foreign taxes on real property. Suppose a portion of your monthly mortgage payment goes into an escrow account, and your lender periodically pays your real estate taxes to local governments out of this account. In that case, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

The tax must be based on value alone and imposed yearly to claim a deduction for the personal property tax you paid. For example, the annual fee for the registration of your car would be a deductible tax, but only the portion of the fee that was based on the car’s value.

Call us or contact us today to find out how we can save you money!

Business Tax Tips

Organizational and Start-Up Costs

Have you just started a new business? Did you know expenses incurred before a business begins operations are not allowed as current deductions? Generally, these start-up costs must be amortized over a period of 180 months beginning in the month in which the business begins. However, based on the current tax provisions, you may elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred. The $5,000 deduction is reduced by any start-up or organizational costs that exceed $50,000. Suppose you want to deduct a larger portion of your start-up cost in the first year. In that case, a new business will want to begin operations as early as possible and hold off incurring some of those expenses until after business begins. Contact us to help determine how you can maximize your deduction for start-up and/or organizational expenses. For additional information on what costs constitute start-up or organizational expenses, refer to IRS publication 535, Business Expenses.

Business or Hobby?

It is generally accepted that people prefer to make a living doing something they like. A hobby is an activity for which you do not expect to make a profit. If you do not carry on your business or investment activity to make a profit, there is a limit on the deductions you can take. You must include on your return income from an activity from which you do not expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. You cannot use a loss from the activity to offset other income. Activities you do as a hobby or mainly for sport or recreation come under this limit. So does an investment activity intended only to produce tax losses for the investors.

The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. For additional information on these entities, refer to business structures. It does not apply to corporations other than S corporations. In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

Your home office will qualify as your principal place of business if you use it exclusively and regularly for the administrative or management activities associated with your trade or business. There must be no other fixed place where you conduct substantial administrative or management activities. If you use both your home and other locations regularly in your business, you must determine which location is your principal place of business based on the relative importance of the activities performed at each location. If the relative importance factor doesn’t determine your principal place of business, you can also consider the time spent at each location.

Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses. Please contact us for more!

Filing Deadline and Payment Options

If you’re trying to beat the tax deadline, there are several options for last-minute help. If you need a form or publication, you can download copies from the IRS Forms page under Tax Tools on our website. If you find you need more time to finish your return, you can get a six-month extension of time to file using Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. If you have trouble paying your tax bill, the IRS has several payment options available.

Refund, Where’s My Refund?

Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date the IRS receives your return. If you file your return electronically, your refund should be issued in about half the time it would take if you filed a paper return — even faster when you choose direct deposit.

Information About IRS Notices

It’s a moment any taxpayer dreads. An envelope arrives from the IRS — and it’s not a refund check. But don’t panic. Many IRS letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice provides specific instructions explaining what you should do if action is necessary to satisfy the inquiry. Most notices also give a phone number to call if you need further information.

Most correspondence can be handled without calling or visiting an IRS office if you follow the instructions in the letter or notice. However, if you have questions, call the telephone number in the upper right-hand corner of the notice or call the IRS at 1-800-829-1040. Have a copy of your tax return and the correspondence available when you call so your account can be readily accessed.

Charitable Contributions

When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations (up to 10% of taxable income) can add up to a nice tax deduction for your corporation.

Here are a few tips to help make sure your contributions pay off on your tax return:

You cannot deduct contributions made to specific individuals, political organizations, and candidates, the value of your time or services, and the cost of raffles, bingo, or other games of chance. To be deductible, contributions must be made to qualified organizations. Cash contributions must be substantiated by a bank record or a receipt, letter, or other written communication from the organization indicating the name of the organization, the date of the contribution, and the amount of the contribution. In addition, if the contribution is $250 or more, a written acknowledgment showing the amount of cash contributed, any property contributed, and a description and a good faith estimate of the value of any goods or services provided in return for the contribution or statement that no goods or services were provided in return for the contribution, is required. Non-cash contributions over $500 must be supported by an attachment to the return which states the kind of property contributed, along with the method used to determine its fair market value. Form 8283, Non-cash Charitable Contributions, is required for contributions with a claimed value of more than $5,000. Contributions that exceed the 10% limitation can be carried over for five years.

Organizations can tell you if they are qualified and if donations to them are deductible. IRS.gov has a Tax-Exempt Organization Search online tool to help you see if an organization is qualified. In addition, taxpayers can call IRS Tax Exempt/Government Entities Customer Service at 1-877-829-5500. Be sure to have the organization’s correct name and its headquarters location, if possible. Churches, synagogues, temples, mosques, and governments are not required to apply for this exemption in order to be qualified. Alternatively, contact us for more information!

Tax Tips for Finance

Tax Saving Techniques

Capital Gains and Losses

Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. The IRS says when you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.

While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property. A “paper loss” — a drop in an investment’s value below its purchase price — does not qualify for the deduction. The loss must be realized through the capital asset’s sale or exchange.

Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it for more than one year, your capital gain or loss is long-term. If you hold it for one year or less, your capital gain or loss is short-term. For more information on the tax rates, refer to IRS Publication 544, Sales, and Other Dispositions of Assets. If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return up to an annual limit of $3,000 ($1,500 if you are married filing separately). Unused capital losses can be carried over indefinitely to future years to net against capital gains, but the annual limit still applies.

Accounting and planning for the sale and purchase of capital assets is usually a very complicated matter, so please contact us so that you may receive the professional advice you deserve.

Coverdell Education Savings Accounts (ESAs)

A Coverdell ESA is a savings account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary (who is under age 18 or is a beneficiary with special needs) of this account in any year cannot be more than $2,000, no matter how many accounts have been established. The beneficiary will not owe tax on the distributions if, for a year, the distributions from an account are not more than a beneficiary’s qualified education expenses at an eligible education institution. This benefit applies to higher education expenses and elementary and secondary education expenses.

Generally, any individual (including the beneficiary) can contribute to a Coverdell ESA if the individual’s income is less than an annual maximum.