income taxes - The Finance Gourmet

HSA Contributions

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A quick reminder not to forget to use your HSA account to pay for ALL of your qualified medical expenses.

Remember, you get the deduction based upon CONTRIBUTIONS, and your contributions do NOT have to be made before your expenses are incurred.

In other words, if you go to the doctor and get a $180 bill, you can (EVEN AFTER) contribute $180 to your HSA account. Pay the $180 doctor bill (maybe using a rewards credit card), and THEN reimburse yourself the $180 expense.

This is the best way to deduct medical expenses if you qualify. Otherwise, remember that you can only deduct medical expenses that are 10% above your adjusted gross income. With an HSA account, every contribution is deductible, regardless of when you use the money to pay medical bills.

Remember, the contribution is deductible, not the expense. Contribute money for every qualified medical expense you have, and the net effect is the same as deducting all of your medical expenses. Remember, unlike a FSA, you can carry over money in an HSA for as long as you like.

IRS Standard Deduction 2017

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What is the standard deduction amount for 2017? The IRS updated the number and it’s a little bit higher this year.

When filing income taxes, taxpayers can choose to either itemize tax deductions, or take the standard tax deduction amount. The IRS adjusts how much the standard deduction is each year based upon inflation. The 2017 standard tax deduction amount is the same as the 2016 deduction amount for most taxpayers because of limited inflation.

2017 Standard Tax Deduction Amount

As usual, there are different deduction values depending upon how you file your income taxes.

Filing Single: The 2017 standard Deduction is $6,350, up $50 from 2016.
Married Filing Jointly: Standard deduction for married filing jointly in 2016 is $12,700, which is up $100 from 2016.
Head of Household: The head of household standard deduction is now $9,350, which is a $50 bump over the $9,300 standard deduction amount in in 2016.

If taxpayers use the standard deduction when filing taxes, the personal exemption is included in the standard tax deduction amount. However, when itemizing tax deductions the personal exemption amount is important.

For 2017, the personal exemption amount is $4,050, which is the same as it was in 2016.. However, taxpayers with incomes above $261,500 (filing single), or $313,800 (married filing jointly) are subject to phase-out of the personal exemption.

Itemize or Use Standard Tax Deduction

To decide whether to itemize deductions, or take the standard deduction, taxpayers should add up their potential itemized tax deductions, and add the personal exemption amount. If that total amount is greater than the applicable standard tax deduction, then itemizing will result in lower taxes.

For most taxpayers whose income comes mainly from salary or other employment, rather than investment income, trust income, or other income, the main determinate of whether itemizing or taking the standard deduction is best is how much mortgage interest is deductible. Typically, without deductible mortgage interest of at least $3,000 or more, the average taxpayer will not have enough deductions to making itemizing better than taking the standard deduction.

All reputable tax software, calculates whether it is better for a tax payer to itemize or not. If doing taxes by hand, then, find the big deductions first, and see if they provide anywhere near the standard deduction number. Itemized deductions are reported to the IRS on Schedule A of the Form 1040.

Other large deductions include medical expenses, but only if they exceed 9 percent of your income, and property taxes.

Deductions Without Itemizing

Many tax deductions are available without itemizing. To see a complete list, check lines 23 through 35 on IRS Form 1040. On lines 49 through 53 are various tax credits that are available whether the standard deduction or itemized deductions are used.

Common tax deductions without itemizing include: educator expenses, health savings account deduction, moving expenses, IRA deductions, student loan interest, and tuition and fees.

Common tax credits offered with, or without itemizing, include the child tax credit and education credits.

Standard Deduction with Small Business

It is still possible to take the standard deduction if you own a small business. Many small businesses files a Schedule C to report income and expenses related to the business. A Schedule C can be filed with, or without a Schedule A for itemized deductions. The results of the Schedule C are reported on Line 12 of the 1040 Form, not within Schedule A. Various businesses can have large deductions (and income) including the home office deduction.

Other Tax Information

Here is how to get an IRS tax transcript and information on what happens if you don’t file your taxes on time.

How Long To Keep Tax Returns

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Tax Day is today. Hope you are ready!

If you have already filed, there is one more piece of tax business you can attend to before you run off into your summer. Time to shred some old tax returns and documents.

IRS Rule For How Long To Keep Taxes

The general rule for how long you have to keep your tax returns and other tax records is three years. HOWEVER, this is the IRS we are talking about, so there are some exceptions, and sub-rules to the general rule.

First, you need to know when to count from. The 3-year rule counts three years from the date you FILED them. So, if you filed early, you don’t technically have to wait until April 15 (I always do. Better safe than sorry.) On the other hand, if you filed late, whether with an extension or not, you need to keep them for three years from that date. Also, the IRS says you should keep your returns for two years after you paid the tax, so if you ended up paying late, or on some sort of payment plan, be sure to keep them for two years after that tax bill has been completely paid.

What Tax Documents to Keep Longer

If you claim a loss from worthless securities, or a bad debt, you have to keep those records (including the return itself) for 7 years.

You need to keep employment records for 4 years after the tax is due.

Any records that are tied to property you need to keep until you are done depreciating that property. With the larger 179 Deduction these days, this doesn’t apply to as many small businesses as it once did, but if you are depreciating something over 11 years, then you need all 11 years of records, should the IRS come calling.

Health records if you have an HSA. Health Savings Accounts are a great way to deduct health care expenses by first contributing the money into an HSA before paying your expenses. However, because there can theoretically be years between contributions and expenses, and you can technically wait as long as you want to claim those expenses (even years later), there is a good chance that you might end up needing more than three years worth of medical expenses should the IRS every come calling about your HSA. You should keep your medical records indefinitely for now, which means you’ll need to go through your taxes and pull them out, or keep them separately from the beginning. Using some sort of electronic records is a good strategy as well.

Fraud and Failure to File

Did you think you were in the clear after three years? Not so fast. Note that all of these limitations start from the DATE YOU FILE. That means if you didn’t file a return, the clock never starts. Technically speaking, you should keep your records forever if you didn’t file.

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The same applies for a fraudulent return. In other words, if you claim $50,000 in non-existent security losses, you won’t be able to hide behind the record limitations as an excuse to not have proof of your losses.

Shred Those 2013 Taxes

So, assuming none of the exceptions apply to you, and that you don’t need those records for other purposes, like business contracts or records, or your lender/banks want them kept, or maybe for insurance purposes, then it’s time to shred.

Since it is April 18th, if you filed on time for 2013 (which means you filed them by April 15, 2014) then you are int he clear to shred taxes from 2013 and earlier. Everything else, you still have to keep.

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Tax Day Cometh