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What Is Education Tax Credit

February 3, 2021 by Finance Gourmet

What is education tax credit on taxes? How to qualify for education tax credit? What are the income limits for the education tax credit? Claiming the education tax credit is easy, as long as you are one of the people who qualifies for education tax credit. Education Tax Credit Taxes The 2020 Education Tax Credit is the name for two separate education tax credits, the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). American Opportunity Tax Credit 2020 The American Opportunity Tax Credit for 2020 is $2,500 maximum. The American Opportunity Tax Credit allows you to claim all of the first $2,000 you spent on tuition, fees and equipment. Most full-time students hit $2,000 on tuition and fees alone. You also get to claim 25% of the next $2,000. That means you need to spend $4,000 to get the full credit. You get $2,000 credit for the first $2,000 and then $500 (25% of $2,000) for the next $2,000. Again, many full-time students will hit the $4,000 just with their bill from the university. You cannot claim living expenses like dorm room fees, but you can claim equipment you buy including laptop computers, tablets, and iPads that …

Roth IRA Income Limits 2022 and 2023

November 29, 2022October 9, 2020 by Finance Gourmet

The questions have started coming in regarding the 2022 and 2023 income limits for Roth IRA contributions. Planning ahead for taxes is always a good idea. However, sometimes, you can get out a little bit too far. The IRS publishes various numbers, tax brackets, and the like for the next tax year during the fall of the previous year, depending upon what the number is, and how it is to be calculated. Maximum salary limits for Roth IRA contributions in 2023, for example, were known well in advance because the number was set by the IRS in advance. However, the income limitations for Roth IRA contributions are indexed for inflation. In other words, the IRS must wait until it has the proper inflation index calculation according to its rules and regulations. Then, it must apply that inflation amount to the Roth IRA contribution limits for income and compute new Roth IRA income phase-out limits and the maximum salary allowed to make Roth contributions at all. Don’t forget, the law removing the salary cap for converting a traditional IRA to a Roth IRA has been made permanent, so you can convert your IRA to a Roth IRA regardless of how high …

New Section 199A Business Tax Deduction

December 6, 2018 by Finance Gourmet

It’s time to dig into how the new Republican tax law is actually going to affect you and yours this coming tax season. While it has been a while since the law was passed, it takes some time for the IRS to iron out the actual rules. Plus, you have to wait for the year to go by before you file your taxes. So, here we are, heading into 2019, and we’ll be doing our 2018 taxes. There are a lot of changes, but one of the biggies is Section 199A. I’m going to take a quick look at the Section 199A Deduction as it applies to a freelancer, or someone who owns their own side business. Section 199A Tax Deduction As noted at the time, the Republican tax bill of 2017 was passed quickly in order to keep any opposition from building up and stopping its passage. As a result, it wasn’t very well thought through, and chances are that there are more than one or two bugs in the system. The IRS itself tried to iron some of those out as it created definitions, and rules and regulations, but there is still a lot of uncertainty about exactly …

Can I Use My 529 Plan to Pay For K-12 Expenses

September 13, 2022January 22, 2018 by Finance Gourmet

529 plans are a tax-advantaged account that allows saving and investing for college expenses. Before last year’s new tax law was passed, one got tax-deferred growth in the account, and tax-free withdrawals for qualified college expenses. Even better, there were very few 529 contribution limits on most plans. Now, the recent tax law has opened up another possible way to use 529 funds tax-free. 529 Plan Withdrawals Until 2018, you could not use your 529 plan to pay for anything other than higher education expenses, in other words, college. Withdrawals from a 529 plan for any other purpose were not only taxable, but subject to a 10 percent tax penalty. But, the new tax law passed at the end of 2017 changes the rules. This tax law allows parents to use up to $10,000 per child for elementary, or secondary education. In other words, you can use up to $10,000 from a 529 plan to pay for private school during the K-12 years. This is a big boon for those who send their kids to private schools. Interested in automatically investing for non-college expenses? Check out my Acorns reviews. Using 529 Money To Pay for Private School There is a …

Home Office Tax Deduction

December 6, 2017 by Finance Gourmet

One of the best deductions for self-employed people who work from home is the home office tax deduction. Basically, you take the square footage of your home office and compare it to the total square footage of your home, and then you get to deduct a similar percentage of certain house expenses as a business deduction. It’s one of the ways to take a little bit of the sting out of self-employment taxes. How To Claim Home Office Deduction Like most self-employed small business tax deductions, you take the home office tax deduction on Schedule C. You’ll need Form 8829 Expenses for Business Use of Your Home to calculate and file your deduction. If you use tax prep software like TurboTax, it will do this for you. (You’ll need one of the small business editions to take this deduction, but it’s most likely going to save you a lot more money than you pay for a more expensive version of TurboTax.) To qualify for the home office deduction, you have to use a specific area of your home exclusively, and on a regular basis. In other words, it has to actually be your office where you do your work for …

2017 Finances and Money Issues

January 3, 2017 by Finance Gourmet

Welcome to 2017! Relax. Take a deep breath. There. Feel better? Good. Then let’s jump in. Finances Updated in 2017 With a new year, come some new numbers. There will be updates to the maximum 401k contributions, income limits for Roth IRAs, and others. Plus, there will be adjustments to the 2017 income tax brackets, the 2017 standard tax deduction, and more. And, of course, there is a new IRS mileage rate for 2017 as well. What about 529 plans? There aren’t a lot of updates to those numbers each year, primarily because most facets of 529 college savings plans are administered through the states, who aren’t always as keen on changing and updating everything. You’ll want to re-evaluate your financial plan for the new year, and you’ll want to review how your financial plan did in 2016. Plus, you’ll want to rebalance your portfolio, if you didn’t do it at the end of 2016. Retirement Plans 2017 A big part of most retirement plans are tax-advantaged savings accounts like your 401k plan, IRA accounts, and, for some of you, 457 plans, 403(b) plans, and various differed compensation plans. All of those need adjusted and reviewed for 2017 as well. …

IRS Phone Call Lawsuit Scam

September 1, 2016 by Finance Gourmet

I used to be a Certified Financial Planner. My wife is an attorney. I’ve dealt with finance, and business, and courts, and the legal system, as both a professional and as a writer. And still, when I get a call and the voicemail says, “This is the IRS…” I still can’t help but tense up. Phone Calls From the IRS Of course, then I remember that these phone calls from the IRS are a scam. Look, the IRS making phone calls is expensive. You have to put someone in a room with a desk, and a computer and a phone. This is confidential government data we’re talking about, plus there are rules, laws and regulations that govern how the IRS is allowed to interact with taxpayers. In other words, we aren’t talking about room full of $10 an hour temps dialing for dollars. It’s way cheaper and more efficient to have a computer crank out thousands of letters than to have people cold calling taxpayers on their home phone numbers. Besides, by law, the IRS must notify you, BY MAIL, IN WRITING, of just about anything that could vaguely be interpreted as negative happens to you. So, why did I …

Health Savings Accounts State Taxes

July 6, 2016 by Finance Gourmet

We’ve discussed before how much of a benefit a Health Savings Account, or HSA, can be for saving money on your taxes. Contributions to an HSA are tax deductible for federal income tax purposes, or in the case of pre-tax contributions, they are simply not part of your income for federal income tax purposes. In addition, all interest, or capital gains earned within an HSA are tax-free, assuming all withdrawals are made to pay qualified medical expenses.But, what about state taxes on Health Savings Accounts? State Taxes on HSA Accounts The Federal Government can’t force states to do things, although there are ways around that, such as make your drinking age 21, or you get less federal highway funds. So, the various states don’t necessarily have to go along with the Feds when it comes to what is and is not tax deductible. In some states, however, that just happens by default. For example, in Colorado, the state income tax form is based upon the taxable income that you calculate for your federal income taxes. In other words, if you deducted it on your U.S. income taxes, it is already deducted when you start doing your state income taxes. That …

Which Is Better HSA or FSA?

May 11, 2016 by Finance Gourmet

Which is better a flexible spending account or a health savings account? The answer to which is better between a health savings account or flexible spending account depends, unfortunately, on the specifics in which they are setup. However, it is relatively simple to determine which is better an FSA or an HSA. First, you’ll want to understand what an FSA vs an HSA looks like. When FSA Is Better Than HSA An flexible spending account, or FSA has many advantages over paying for medical expenses out of your own pocket. However, it has only one real advantage over a health savings account, or HSA. The only eligibility requirement for having and using an FSA is that your employer offers one. It doesn’t matter what kind of health insurance plan you choose, or whether that plan has a high deductible. In order to have an HSA, you must have a qualifying high-deductible health insurance plan. The reality is that the deductibles aren’t necessarily that high, and in fact, may be close to the deductibles on other health plans. But, if you don’t qualify for an HSA, then a FSA is better than an HSA. The only other advantage of an FSA …

When To Throw Away Taxes

April 22, 2016 by Finance Gourmet

Congratulations on filing your taxes. I hope they were too bad this year. Now, it is time to shred some taxes and their associated documents. Tax Shredding Time How long do you have to keep your taxes? Well, it’s the IRS, so the answer is of course, complicated and convoluted. However, for the most part, the answer is three years. But, before you fire up that shredder, and destroy your tax records, let’s look at the exceptions. I’ll tell you when you can just skip a section so it doesn’t get too tricky. Skip this section if you have never filed or paid late: If you paid the tax late, you may have to keep your tax documents longer. The rule is that you must keep your taxes for two years from the date your paid the tax or filed your return, but no less than three years. In other words, you can shred your 2012 and earlier taxes during 2016 (you just filed and paid your 2015 taxes), but only if you actually filed and paid your 2012 taxes in 2012. If you were late, you have to keep them for two years after you paid them. If you pay …