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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 …

HSA Contribution Limits 2020 and 2021

January 29, 2021June 12, 2020 by Finance Gourmet

A health savings account, or HSA, is a great way to save money for medical expenses. If you qualify for an HSA, you get to deduct every dollar in contributions up to the HSA contribution limit. If you pay your medical expenses with an HSA, it ends up that you can deduct every single dollar of medical expenses, instead of just the amount over 10% of your income. In addition, over time, your money grows tax-free inside of the account. HSA Contribution Limits 2020 The 2019 HSA Contribution limit is $3,550 for an individual, or up to $7,100 for a family. Remember to qualify for an HSA, you have to have a qualifying HDHP (High-Deductible High Health Plan). HSA Contribution Limits 2021 The IRS recently released the information regarding contributions to an HSA in 2021. Each year, the contribution limit for HSA accounts is adjusted for inflation. This year, inflation was slightly higher for the year, so there was a small increase in the contribution limits for HSA accounts. For 2021 HSA contributions, the limits will be $3,600 for an individual, or “self-only” high deductible health plan. For someone with family coverage, the limit rises to $7,200, up from $7,100 …

What Is Still Deductible

December 6, 2019November 13, 2019 by Finance Gourmet

Trump’s new tax law has caused a lot of confusion. One of the big areas of confusion is that many of the so-called “itemized-tax deductions,” won’t really count for most American taxpayers anymore. It’s not that those deductions are gone, it’s just that triggering the threshold where itemizing tax deductions saves you more money than taking the standard tax deduction has moved. New “Smaller” Tax Forms Politicians are always lying and claiming victory when they have achieved no such thing. One thing many politicians tried to take credit for with the new Trump tax law was making taxes simpler. They did… kind of… sort of… My favorite part of the new tax law is that you can “file your taxes on a postcard.” <insert super eyeroll> You know, if you use both sides of the postcard… with no space for any sort of address for mailing it… and if anyone still used postcards, which the IRS does not recommend for filing your taxes. The official IRS 1040 form would indeed fit on an non-mailable postcard. If you printed it front and back. Sound dumb? It is. Still, here we go, the official IRS Form 1040. Wait a minute. That IS …

IRS Form 1040 – 2018

January 24, 2019 by Finance Gourmet

The 2018 IRS Form 1040 has been out for a while now. Unfortunately, more than a little bit of the new tax law is on shaky ground while the government is shutdown and the IRS is playing catch up with its remaining staff. That being said, it’s time to take a quick look at the 2018 Form 1040. Check out my look into Credit Karma. IRS Form 1040 Simpler – Sort Of One of the points of the new tax law was to make filing taxes easier. The supposed goal was a tax form so simple it could fit on a postcard. While the main 1040 could indeed fit on a postcard, a lot of taxpayers are going to need to add one or more “schedules” to calculate the values that go on that postcard. But, since when did a bit of reality clog up the pronouncement of politicians The 1040 Schedules The usual schedules from previous years are still here, including Schedule A if you are itemizing your deductions, Schedule C for small business owners and the self-employed, Schedule D for capital gains/losses, and so on. New Schedules making their debut so that the 1040 can be artificially small …

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 …

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 …

Fix RMD Tax Problems With QCD

September 26, 2017 by Finance Gourmet

You’ve spent a lifetime saving for retirement, and you did a really great job. So great, in fact, that you don’t need to take money out of your IRAs. But, you’ve turned 70 1/2, and now the IRS is forcing you to withdraw money from your IRA every year in the form of a Required Minimum Distribution, or RMD. Is there any way to get around having to take an RMD? Mitigating Your RMD’s Affect On Your Taxes The IRS gave you years of tax relief on the funds in your IRA. They only did that to encourage you to save for retirement. Now, that you’re retired (or at least retirement aged) they want their money now in the form of taxes on your IRA withdrawals, but if you played your cards right, you might not ever need to withdraw, and the IRS would have to wait longer for that money. The IRS hates waiting. The RMD keeps this from being the case. Once you turn 70 1/2 years old, you have to take some money out every year, and the government is there, waiting to tax it. Unfortunately, there is no way to get out of having to take …

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. …

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 …

Avoid IRS and Tax Scams

March 7, 2016 by Finance Gourmet

The IRS is used as a way to scam Americans out of money every year. Some the tax scams are very sophisticated. Others, seem like they would defy common sense. This year, the IRS put out a list of the Dirty Dozen tax scams for people to look out for. Here are some of them. Promises of Big Refunds – This is where the complexity of the tax code bites the unwary. Yes, there are a lot of deductions, and tax credits out there, and yes, some of them can be pretty unknown, but don’t believe that you’ve been way overpaying your taxes all these years, if only you’d known about a tax loophole. Research and be sure you understand before you sign your name to any weird forms. IRS Phone Call Scams – Remember, the IRS is legally required to send you notifications of most actions before you get some phone call. Ask them to put it in writing. Also, IRS agents don’t threaten to arrest people out of the blue. Arrest, garnishment, and property forfeiture all require a court proceeding. Real IRS agents won’t tell you that this is your last chance and that you have to send money …