Connect with us

Finance

Tax Deductions Explained (and Common Ones You Could Claim)

Published

on


Part of being an American is looking toward Tax Day with either dread or anticipation. Will you have to cut a check to Uncle Sam, or will you get a plump refund? Tax deductions can tip the scales — a lot — meaning you’ll end up sending less money to the IRS.

We all want that, right? 

Read on to understand which common tax deductions you could claim when you file your 2019 return. Note that we use 2019 numbers because these apply to the tax return that’s due April 15, 2020.

What Is a Tax Deduction?

Tax deductions, also known as tax write-offs, lower your taxable income so you’ll pay less overall. You can either go with the standard deduction, which is a predetermined amount that is subtracted from your income, or itemized deductions, which take into account your particular expenses such as charitable donations and some health care costs. 

Tax deductions are different from tax credits. A tax deduction decreases your taxable income, whereas a tax credit lowers the amount of taxes you owe the IRS.

Calculating Your Adjusted Gross Income

Deductions are typically calculated from something called your adjusted gross income, or AGI.

Do you know how much you make each year? What about the amount you contribute to retirement? The IRS uses this information and more to calculate your adjusted gross income (AGI), which is the starting point for figuring out your tax bill.

Your AGI includes your wages, alimony, dividends, retirement distributions and business income. If you’ve paid student loan interest, contributed to a traditional IRA or paid into a health savings account, those expenses are deducted. What’s left over is your AGI.

Changes From 2017 Tax Reform

In late 2017, Congress passed the Tax Cuts and Jobs Act, a sweeping overhaul of the federal tax code. The main change affecting everyday Americans was to the standard deduction; before 2018 it was $6,350 for single filers and $12,700 for married couples filing jointly. Under the new law, it nearly doubled: For 2019 taxes, it’s $12,200 for individuals and $24,400 for married people who file a joint return.

While the 2017 changes were good news for some people, they came at the expense of several popular deductions that were eliminated. These include:

  • Job-related moving expenses for non-military
  • Home equity loan interest deduction, unless the loan is used to improve the home
  • Alimony for the person paying spousal support
  • Job search expenses
  • Unreimbursed work expenses

Standard vs. Itemized Deductions

Still, a number of itemized deductions remain in play. Whether you choose the standard deduction or itemize them depends on your personal situation. 

If your potential deductions equal more than the standard deduction, itemizing will lower your taxable income and save you money. 

Here’s another way to think about it: If you’re a young, single person with a full-time job, you’re healthy and you rent rather than own a home, you will almost certainly take the standard deduction because your deductible expenses probably won’t total more than $12,200. 

But if your financial profile is more complex — think mortgage, property taxes, medical expenses — then you might benefit from itemizing.

Popular Tax Deductions for Itemizers

woman holding tax documents and reading message on smartphone at home

If you’re thinking of itemizing, you need to know what is and isn’t tax deductible. Here are some common deductions.

1. Charitable Contributions

If you gave money or goods to a charity during the year, you could be eligible for a tax deduction. The organization must be designated as a nonprofit by the IRS. Usually these are religious, educational or charitable groups.

There are some limitations on what you can include in this deduction. For example, if you donated to your local PBS station and they sent you a “thank you” T-shirt, you can’t deduct the value of the shirt. So if your contribution was $100 and the T-shirt was worth $10, you can only deduct $90 on your tax return.

Additionally, you can only deduct charitable contributions up to 50% of your AGI. (Most people can’t donate half their income to charity anyway.) But there are additional limits depending on the organization. Donations to churches, hospitals and colleges qualify up to 50% of AGI, but contributions to veterans’ organizations and fraternal societies have a lower cap — only 30% of AGI.

You can deduct expenses from charitable work.

Pro Tip

For example, if you knit hats for a homeless charity you could deduct the cost of the yarn you used. Make sure you save your receipts in case you’re hit with an audit.

2. Mortgage Interest

The interest you pay on your home mortgage can total many thousands of dollars, particularly at the beginning of the loan. Luckily, you can deduct that interest from your taxable income. This is applicable for debt up to $750,000 or $375,000 if you’re married filing separately through 2025 . If you bought your home on or before Dec. 15, 2017, you can deduct mortgage interest on debt up to $1 million or $500,000 if you’re married filing separately.

3. Property Taxes

The 2017 tax reform put new limits on property tax deductions. Beginning in 2018, you can deduct state and local taxes up to $10,000 or $5,000 if you’re married filing separately. Those caps are for state and local income, property and sales taxes combined. 

Let’s say you paid $8,000 of state income tax, $7,000 of property taxes and $6,000 of sales tax. Your deduction is limited to $10,000. Prior to tax reform, you could have deducted each of these expenses in full. 

4. Medical Expenses

If you had significant medical expenses last tax year that weren’t reimbursed by insurance, you could get a deduction. The bills must equal 10% or higher of your AGI to qualify for the deduction in 2019. Even then, you can only deduct the amount above 10% of AGI.  For someone with an AGI of $50,000, that means you can’t deduct medical expenses until they exceed $5,000, or 10%.

Pro Tip

If your state has an income tax, you may be able to deduct a percentage of medical expenses from your state taxes as well, though the amount will vary.

Qualified medical expenses include:

  • Bills paid to doctors, dentists, chiropractors and more
  • Hospital visits or stays
  • Nursing home care
  • Some weight loss programs
  • Addiction programs
  • Prescription medications
  • Transportation to and from medical appointments
  • Acupuncture
  • Dentures, crutches, hearing aids, wheelchairs and service animals
  • Reading or prescription glasses or contact lenses

Deductions You Can Claim With the Standard Deduction

Even if you don’t itemize, there are some valuable deductions you can still claim. They’re known as “above-the-line” deductions.

1. Educator Expenses

In an ideal world, teachers wouldn’t have to pay out of pocket for school supplies. In reality, most teachers routinely dip into their own funds to buy pencils, paper, glue and other items for their classrooms. The IRS allows K-12 teachers to deduct up to $250 for educator expenses such as classroom materials. 

2. Student Loan Interest

If you paid interest on your student loans, you can deduct up to $2,500 in interest payments if you earned less than $$70,000 for single filers or $140,000 if you’re married filing jointly. Above that, the deduction phases out, but those earning up to $85,000 as single filers or $170,000 for those who are married filing jointly can get a reduced deduction. 

This only applies for people filing their own tax returns; if you’re still listed as a dependent on your parents’ tax return you can’t claim the student loan interest deduction. You also can’t claim this deduction if your loan isn’t in your name. So, if your parents took out the loan on your behalf, they will get the deduction instead.

3. Moving Expenses for Military

Members of the military are eligible to deduct moving expenses from their taxable income. In previous years, civilians could also deduct moving expenses, but the deduction is now limited to military personnel.

4. Health Savings Account Contributions

Health savings accounts, or HSAs, are accounts you can use to save for medical expenses if you have a high-deductible health insurance plan. A high-deductible plan is defined as one that has a minimum deductible of $1,350 for a single person or $2,700 for a family. 

You can deduct contributions of up to $3,500 if you’re single or $7,000 for a family in 2019. 

5. Self-Employment Expenses

If you’re self-employed, you can deduct quite a few expenses. These include:

  • Home office: You can deduct the space devoted to your home office at a rate of $5 per square foot for up to 300 square feet of space. However, you must use this room exclusively as your home office, so you can’t set up a desk next to your spare bed and claim that as your office. You also must use that room regularly for business.
  • Education: As a self-employed individual, you can deduct things like tuition, books and lab fees for education that “maintains or improves skills needed in your present work,” according to the IRS.
  • Car: If you use your car for business, such as driving to meetings with clients or vendors, you can deduct 58 cents per mile as of 2019. You can also deduct things like gas, licenses, tolls and parking fees.

6. Health Insurance Premiums

If you are self-employed, you can deduct your health premiums.

You can also take the deduction, minus any subsidies you received, if you get your health insurance through a state or federal marketplace.

7. IRA Contributions

You could get a tax deduction if you contribute to a traditional IRA as part of your retirement savings portfolio. The maximum contribution for 2019 is $6,000, and $7,000 for those over age 50, and it’s fully tax deductible. But your eligibility also depends on how much money you make and whether you or your spouse has an employer-sponsored retirement plan. Consult the IRS guidelines for those income limits.

Catherine Hiles is a contributor to The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.



Source link

قالب وردپرس

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Finance

A Day in My Quarantined Life

Published

on


This post may contain affiliate links. Read my disclosure policy here.

Just for fun, last , I took pictures and shared in real-time on Instagram a peek into a pretty normal day in our lives. I say “normal”, but nothing is really normal right now due to COVID-19, our city’s current Safer at Home order.

But I wanted to document what this period of our lives was like — when we were home 24/7 all day, every day, as a whole family. This was two days before we brought Champ home from the NICU and it was during the few-day period when I was unable to visit him there due to the lockdown on visitors as a result of COVID-19. (In case you were wondering why I didn’t go up to the NICU on this day.)

I’ll be sharing another Day in My Quarantined Life post next week with the added addition of a newborn. That will look very different! 🙂

So without further ado, enjoy a peek into a day during this period of history when we were all self-isolating…

A Peek Into My Quarantined Life

6:50 a.m. — Up and make my favorite non-coffee drink (The Morning Motivator + Dandy Blend + half & half) and read my Bible reading for the day from She Reads Truth.

7:30 a.m. — I switch the laundry I had started the night before into the dryer and start another load in the washer.

7:45 a.m. — I fold a clean load of laundry while listening to an audiobook.

8:15 a.m. — I picked out my new books to read for the week and hopped on the treadmill for my morning reading/prayer time (yes, I walk while I read and pray!)

9:10 a.m. — I shower and get dressed for the day. I usually pick out my outfit for the day the night before to make getting dressed a snap in the mornings.

Kaitlynn usually makes some unique breakfast for herself every morning. Today’s breakfast was strawberry/peanut butter toast.

9:35 a.m. — I eat the same thing most every day for breakfast — a big bowl of Raisin Bran. Kaitlynn and I ate breakfast together this morning (breakfast is always on your own at our house right now, but sometimes I’ll sit down and eat with one child).

10 a.m. — I lie down to rest (since I’m near the end of my pregnancy, I usually have to lie down and rest once or twice a day). While resting, I watched the local news, talked to Jesse, and answered Instagram messages.

11 a.m. — Still resting. I go through my email inbox and answer all of the urgent messages.

11:45 a.m. — I took a break from business work to do my hair and makeup. (I usually have to lie down after my morning walk and shower because doing both of those things back to back wear me out for awhile!)

12:15 p.m. — Made Red Raspberry Leaf Tea, talked to Jesse, and checked my messages on Instagram.

12:45 p.m. — I sit with Silas while he works on his school for the day. I work on chapter 8 of my manuscript for my upcoming book. (I’m over 75% done with the rough draft!) (And yes, we allow PJ-wearing in our homeschool right now… provided you take a bath and put on clean PJs. :))

1:30 p.m. — I eat lunch and work on final edits to chapter 7 of my manuscript before I submit it to my editor who is working with me in the book-writing process.

The girls have been doing various creative projects since they are home 24/7. I love seeing the unique ideas they are coming up with. Kathrynne’s project for today was hand-drawing this coloring page to color in (the girls have also been super into making friendship bracelets right now — and you can see all their embroidery floss in the photo above).

Here’s a better photo of the coloring page she drew.

4 p.m. — Time to take my prenatal vitamins. (I spent the last two hours working on my book and working on foster care related phone calls + talking to Jesse about some decisions we needed to make there.)

5 p.m. — Snack time — dates with peanut butter (dates are for labor prep). I worked on getting my Hot Deals enewsletter ready to go + the blog post for the day and worked on some projects for my Mastermind group.

7 p.m. — Finished with my work projects for the day! And it’s onto making dinner. I used some bread crumbs, spaghetti sauce, mozzarella cheese, and chicken. I dipped the chicken in egg mixture and then in bread crumbs and browned the chicken on the stove top. Then I put it in a pan with sauce and cheese and baked it. It was a Chicken Parmesan dish of sorts — using what I had on hand.

7:20 p.m. — While the chicken was cooking, I unload and reload the dishwasher and listen to an audiobook.

8:15 p.m. — Dinner time! (I made mine chicken without sauce — since it gives me heartburn. We served the chicken over pasta with peas.)

After dinner: We did our before bed house cleaning (everyone cleans up their designated spaces) and everyone helped with some laundry while we finished watching a movie. I wrote out my time-blocked to do list and answered a few emails and then went to bed at 10:30 p.m.



Source link

قالب وردپرس

Continue Reading

Finance

When Will I Receive a Coronavirus Check? Here’s What IRS Says

Published

on



There’s a good chance you’ll have your coronavirus stimulus check in your bank account by April 14, according to a report by The Washington Post

The first direct deposits will be made April 9, according to an IRS draft plan obtained by The Post. Most payments would be available by April 14 at the latest, though the exact date will vary based on how quickly banks can process them. 

Paper checks would be mailed beginning April 24, at a rate of 5 million per week, according to the plan. Those with the lowest adjusted gross incomes would receive the first payments.

Most single adults who aren’t claimed as dependents on someone else’s tax return will receive stimulus payments of $1,200, while married couples will get $2,400. Families with children 16 or younger will receive a $500 credit per child

Benefits for single people with AGIs over $75,000 and married people with AGIs over $150,000 are reduced by 5 cents for every $1 they earn above these thresholds. 

For more information about how the payments will work, check out our coronavirus stimulus checks FAQ

When Will I Receive My Coronavirus Check?

OK, so the big question on your mind is probably: When will I receive my coronavirus check? Here’s the timeframe for payments, as reported by The Post:

April 9: The first direct deposit payments will be made. The majority of these deposits will be available by April 14 at the latest.

April 24: Paper checks will be mailed out to people with adjusted gross incomes (AGIs) of $10,000 or less who don’t have direct deposit information on file with the IRS.

May 1: Checks will be sent to people with AGIs of $20,000 or lower. Each week, another round of checks will go out to those whose incomes are within the next $10,000. So on May 8, checks will be mailed to those with AGIs of $30,000 or less. On May 15, they would go to those whose AGIs are $40,000 or less, etc.

Sept. 4: The final checks would be mailed to eligible taxpayers with the highest AGIs.

Sept. 11: Checks will be mailed to people who need to apply for payments because the IRS doesn’t have tax information available for them.

How Do I Sign Up for Direct Deposit?

If you haven’t signed up for direct deposit via the IRS or Social Security — or if the information they have on file is for a bank account you’ve closed — there’s no easy way to do so at the moment.

The IRS is building a web portal that would allow you to set up and update that information. The feature will probably be available by the end of April to early May, according to a memo from the House Ways and Means Committee.

If you haven’t filed your 2019 tax return yet, you could do so ASAP so the IRS has your updated bank account information.

If you’ve closed your bank account and the IRS tries to deposit your payment to that account, the funds will ultimately be sent back to the IRS. The IRS will eventually mail your check to your last known address if you don’t update your account information in the portal once it’s available.

Is There Anything I Can Do to Get My Check Faster?

There are really only two things you can do to speed up this process:

1. File a 2018 or 2019 tax return if you’re not receiving Social Security benefits.

2. Sign up for direct deposit or update your bank account information if you haven’t already once the IRS makes its portal available. Check https://www.irs.gov/coronavirus frequently, as that’s where the IRS is posting all key information related to coronavirus relief.

If you’ve done those two things, the only thing you can do is sit back and wait.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind the Dear Penny personal finance advice column.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.



Source link

قالب وردپرس

Continue Reading

Finance

Best Interest Rates on Cash – April 2020

Published

on


The Federal Reserve further cut their target Fed Funds Rate to zero in March, so we continue to see a steady stream of rate drops on cash savings. I hope that some of you got a nice rate locked-in if you tried to refinance your mortgage.

Here’s my monthly roundup of the best interest rates on cash for April 2020, roughly sorted from shortest to longest maturities. I track these rates because I keep 12 months of expenses as a cash cushion and also invest in longer-term CDs (often at lesser-known credit unions) when they yield more than bonds. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 4/2/2020.

High-yield savings accounts
While the huge megabanks make huge profits while paying you 0.01% APY, it’s easy to open a new “piggy-back” savings account and simply move some funds over from your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.

Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.

  • No Penalty CDs offer a fixed interest rate that can never go down, but you can still take out your money (once) without any fees if you want to use it elsewhere. Marcus has a 7-month No Penalty CD at 1.70% APY with a $500 minimum deposit. Ally Bank has a 11-month No Penalty CD at 1.55% APY with a $25,000 minimum deposit. CIT Bank has a 11-month No Penalty CD at 1.70% APY with a $1,000 minimum deposit. You may wish to open multiple CDs in smaller increments for more flexibility.
  • CIT Bank has a few competitive term CDs at similar rates: 12-month CD at 1.86% APY ($1,000 min), 13-month at 1.82% APY, and 18-month at 1.85% APY.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the difference for themselves). The following money market and ultra-short bond funds are not FDIC-insured, but may be a good option if you have idle cash and cheap/free commissions.

  • Vanguard Prime Money Market Fund currently pays an 1.07% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund which has an SEC yield of 0.68%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 2.08% SEC yield ($3,000 min) and 2.18% SEC Yield ($50,000 min). The average duration is ~1 year, so there is more interest rate risk.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 2.57% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 3.16% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. Note that the higher yield came from a drop in net asset value during the recent market stress.

Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes. Right now, this section probably isn’t very interesting as T-Bills are yielding close to zero!

  • You can build your own T-Bill ladder at TreasuryDirect.gov or via a brokerage account with a bond desk like Vanguard and Fidelity. Here are the current Treasury Bill rates. As of 4/2/2020, a new 4-week T-Bill had the equivalent of 0.09% annualized interest and a 52-week T-Bill had the equivalent of 0.14% annualized interest.
  • The Goldman Sachs Access Treasury 0-1 Year ETF (GBIL) has a 1.42% SEC yield and the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) has a 0.88% SEC yield. GBIL appears to have a slightly longer average maturity than BIL. Expect these yields to drop significantly as they are updated.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between November 2019 and April 2020 will earn a 2.22% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. More info here.
  • In mid-April 2020, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend nor use any of these anymore.

  • The only notable card left in this category is Mango Money at 6% APY on up to $2,500, but there are many hoops to jump through. Requirements include $1,500+ in “signature” purchases and a minimum balance of $25.00 at the end of the month.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. I don’t use any of these anymore.

  • Consumers Credit Union Free Rewards Checking (my review) still offers up to 5.09% APY on balances up to $10,000 if you make $500+ in ACH deposits, 12 debit card “signature” purchases, and spend $1,000 on their credit card each month. Elements Financial has dropped to 2% APY on balances up to $20,000 if you make 15 debit card “signature” purchases or other qualifying transactions per statement cycle. Find a locally-restricted rewards checking account at DepositAccounts.

Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.

  • Pen Air Federal Credit Union has a 5-year certificate at 2.20% APY ($500 minimum). Early withdrawal penalty is 180 days of interest. Their other terms are competitive as well, if you want build a CD ladder. Anyone can join this credit union via partner organization ($3 one-time fee).
  • You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. You may need an account to see the rates. These “brokered CDs” offer FDIC insurance and easy laddering, but they don’t come with predictable early withdrawal penalties. Vanguard and Fidelity both have a 5-year at 1.60% APY right now. Be wary of higher rates from callable CDs listed by Fidelity.

Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10 years? You can buy long-term certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer FDIC insurance, but they don’t come with predictable early withdrawal penalties. Vanguard has a 10-year at 1.50% APY right now. Watch out for higher rates from callable CDs from Fidelity.
  • How about two decades? Series EE Savings Bonds are not indexed to inflation, but they have a unique guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). I view this as a huge early withdrawal penalty. You could also view it as a hedge against prolonged deflation, but only if you can hold on for 20 years. As of 4/2/2020, the 20-year Treasury Bond rate was 1.04%.

All rates were checked as of 4/2/2020.



“The editorial content here is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone. This email may contain links through which we are compensated when you click on or are approved for offers.”

Best Interest Rates on Cash – April 2020 from My Money Blog.


Copyright © 2019 MyMoneyBlog.com. All Rights Reserved. Do not re-syndicate without permission.



Source link

قالب وردپرس

Continue Reading

Trending