FAQs and Tax Tips

The tax code provides a variety of tax incentives for families who are paying higher education costs or are repaying student loans.

You may be able to claim an American Opportunity Credit (formerly called the Hope Credit) or Lifetime Learning Credit for the qualified tuition and related expenses of the students in your family (i.e. you, your spouse, or dependent) who are enrolled in eligible educational institutions. Different rules apply to each credit and the ability to claim the credit phases out at higher income levels.

You may be able to claim a tuition deduction of up to $4,000 of qualified education expenses paid during the year for yourself, your spouse, or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

Source: IRS.gov

Be sure to check that the organization is qualified before you consider donating! Taxpayers must make certain that they contribute their car to an eligible organization; otherwise, their donation will not be tax deductible.

Taxpayers can search Publication 78 online to check that an organization is qualified. Publication 78 is an annual, cumulative list of most organizations that are qualified to receive deductible contributions. Publication 78 is also available in many public libraries. 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 SVA if you’re considering a car donation for your tax return we’ll assist you in determining the fair market value, determining the appropriate deduction and identify the necessary documentation.

Source: IRS.gov

As you’re planning and preparing to file your federal tax return, don’t forget your charitable contributions. Charitable contributions made to qualified organizations may help lower your tax bill.

As you’re planning and preparing to file your federal tax return, don’t forget your charitable contributions. Charitable contributions made to qualified organizations may help lower your tax bill. Your donations can add up on your corporate or personal taxes. Keep in mind, in order to deduct a charitable contribution you must file Form 1040 and itemize deductions on Schedule A.

To be deductible, contributions must be made to qualified organizations. Organizations can tell you if they are qualified and if donations to them are deductible. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.

IRS.gov has an exempt organization search feature to help you see if an organization is qualified. IRS Publication 78, Cumulative List of Organizations, lists all charitable organizations except those most recently granted tax exempt status. Pub. 78 is available online and in many public libraries.

Get eight tips for deducting charitable contributions here.

Source: IRS.gov

Your refund should take about six to eight weeks from the IRS date of receipt, if you file a complete and accurate paper tax return. However, if you choose to file electronically, your refund should be issued in approximately half of that time – even faster if you elect to receive your refund as a direct deposit.

You can have a refund check mailed to you, or you may be able to have your refund electronically deposited directly into your bank account. Direct deposit into a bank account takes the U.S. Treasury less time than going through the process of issuing a paper check and it offers more security, inevitably it will be received much faster than standard U.S. Mail checks. Be careful in preparing your forms! Make sure in preparing the forms the direct deposit information is completed with the correct routing and account numbers.

Is your refund taking longer than you expected? A refund can be delayed for a myriad of reasons including a mismatch in name and social security number with IRS records, incorrect bank accounts or routing numbers, failure to sign the return or include the necessary documents, or there may even be an error that requires additional time for correction.

Source: IRS.gov

Do you suspect you may be eligible for tax credits?

As a taxpayer you should consider claiming tax credits you might be eligible for when completing for federal tax returns, advises the IRS. A tax credit is a reduction from the total amount a taxpayer owes to the state. Tax systems may grant tax credits to businesses or individuals, and such grants vary by type of credit. In some cases taxes could be reduce to the point that a taxpayer would received a refund rather than owing any taxes.

Some of the credits taxpayers could be eligible to claim include

• Earned Income Tax Credit
  You may qualify for the Earned Income Tax Credit, or EITC, if you worked last year, but did not earn a lot of money.

  EITC is a refundable tax credit meaning you could qualify for a tax refund even if you did not have federal income tax withheld. This size of this refundable credit for low-income working individuals and families is determined by income, filing status and family size. A tax refund results when the EITC exceeds the amount of taxes owed for those who claim the credit and qualify to receive it. For more information, see IRS Publication 596, Earned Income Credit (EIC).

• Child Tax Credit
  The child tax credit of $1,000 is for people who have a qualifying child. The credit amount is for each qualifying child and can be claimed in addition to the credit for child and dependent care expenses. For more information, see Pub. 972, Child Tax Credit.


• Child and Dependent Care Credit
  This credit is for expenses paid for the care of minors under age 13, or for a disabled spouse or dependent, in order for a taxpayer to work or look for work. A limit exists pertaining to the amount of qualifying expenses. The credit is actually a percentage of those qualifying expenses. For more information, see Pub. 503, Child and Dependent Care Expenses.


• Adoption Credit
  In 2010 and 2011, you may be able to take a refundable tax credit for qualifying expenses paid to adopt an eligible child (including a child with special needs). This means that you could qualify for a tax refund even if you did not have federal income tax withheld. For tax years prior to 2010, the adoption credit is not refundable.

  A tax credit, including the adoption credit, reduces your tax liability. For expenses paid prior to the year the adoption becomes final, the credit generally is allowed for the year following the year of payment. For expenses paid in and after the year the adoption becomes final, the credit is allowed in the year of payment. The adoption credit is not available for any reimbursed expense. In addition to the credit, certain amounts paid by your employer for qualifying adoption expenses may be excludable from your gross income. For more information, see Pub. 968, Tax Benefits for Adoption.

• Credit for the Elderly and Disabled
  This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or a resident alien. There are income limitations. For more information, see Pub.524, Credit for the Elderly or the Disabled.


• Education Credits
  Education tax credits can help offset the costs of education. The American Opportunity (Hope Credit extended) and the Lifetime Learning Credit are education credits you can subtract in full from the federal income tax, not just deduct from taxable income.

  The American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student. The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year. For more information, see Publication 970, Tax Benefits for Education.

• Retirement Savings Contribution Credit
  If you make eligible contributions to certain eligible retirement plans or to an individual retirement arrangement (IRA), you may be able to take a tax credit. The amount of the saver's credit you can get is generally based on the contributions you make and your credit rate. Eligible individuals may be able to claim a credit for a percentage of their qualified retirement savings contributions, such as contributions to a traditional or Roth IRA or salary reduction contributions to a SEP or SIMPLE plan.

  To be eligible, you must be at least age 18 at the end of the year and not a student or an individual for whom someone else claims a personal exemption. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).

  There are other tax credits available to eligible taxpayers, please contact us to discuss other available credits for your specific situation.

Source: IRS.gov

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 pay off.

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 SVA if you’re recently refinanced to learn how we can help you take advantage of related deductions.

Source: MortgageFinancingAndCredit.com

You may qualify to exclude from your income all or part of any gain from the sale of your main home. Your main home is the one in which you live most of the time. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases). This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.

To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have owned the home for at least two years and lived in the home as your main home for at least two years. You also must not have excluded gain on another home sold during the two years before the current sale.

If you have more than one home, you can exclude gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.

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.

You cannot deduct a loss from the sale of your main home.

How do you decide to report the sale of your main home on your tax return? Contact us, we’ll be happy to help.

Source: IRS.gov

Generally, you must decide whether to itemize deductions or to use the standard deduction. The standard deduction is a dollar amount that reduces the amount of income on which you are taxed. You should itemize deductions if your allowable itemized deductions are greater than your standard deduction. Some taxpayers must itemize deductions because they cannot use the standard deduction.

You cannot use the standard deduction if you are married and filing a separate return, and your spouse itemizes deductions, if you are a nonresident alien or a dual-status alien during the year, or you are filing a tax return for a period of less than 12 months because of a change in your annual accounting method . In addition an estate or trust, common trust fund, or partnership cannot use the standard deduction.

You may benefit from itemizing your deductions on Schedule A if you cannot use the standard deduction, had large uninsured medical and dental expenses, paid interest or taxes on your home, had large unreimbursed employee business expenses, had large uninsured casualty or theft losses, or made large charitable contributions.

The IRS allows you to file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation. There are four types of deductible non-business taxes:

1. State and local income and sales taxes;
2. Real estate taxes;
3. Personal property taxes; and
4. Foreign income taxes.

Call SVA to learn whether itemizing is the right approach for you!

Source: IRS.gov

A federal tax applied to an individual giving anything of value to another person. For something to be considered a gift, the receiving party cannot pay the giver full value for the gift, but may pay an amount less than its full value. It is the giver of the gift who is required to pay the gift tax.

The receiver of the gift may pay the gift tax, or a percentage of it, on the giver's behalf in the event that the giver has exceeded his/her annual personal gift tax deduction limit.

If you gave any one person gifts valued at more than $13,000, it is necessary to report the total gift to the Internal Revenue Service.

There are some exceptions to the tax rules on gifts. The following gifts do not count against the annual limit:

• Tuition or medical expenses that you pay directly to an educational or medical institution for someone's benefit
• Gifts to your spouse
• Gifts to a political organization for its use
• Gifts to charities

If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift. Recent legislation has made allowances for a limited time regarding how much a person can gift. Contact our trust and estate professionals to learn how to take advantage of this limited opportunity.

Source: Investopedia.com

Under U.S. tax laws, the worldwide income of any U.S. citizen or resident alien is subject to tax. It doesn't matter if you're living in the United States or overseas, or the money came to you as wages, independent contractor payments or unearned income from investments, pensions, rents or royalties.

This applies whether a person lives inside or outside the United States. The foreign income rule also applies regardless of whether or not the person receives a Form W-2, Wage and Tax Statement, or a Form 1099 (information return).

There is a bit of a break for U.S. taxpayers who live abroad and meet certain requirements. These worldly citizens may be able to exclude all or a portion of their foreign earned income from the American tax code. If qualified, a worker can exclude up to $91,500 of their foreign income. This exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S.

Source: IRS.gov