Tax Tips for Individuals
Tax Incentives for Higher Education
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.
If you don't qualify for the credit, you may be able to claim the "tuition & fees deduction" for qualified educational expenses. 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. This deduction phases out at higher income levels.
You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not have to itemize your deductions on Schedule A Form 1040. However, this deduction is also phased out at higher income levels.
Check Your Withholding to Avoid Tax Issues
If you owed tax last year or received a large refund you may want to adjust your tax withholding. Owing tax at the end of the year could result in penalties being assessed. On the other end, if you had a large refund you lost out on having the money in your pocket throughout the year. Changing jobs, getting married or divorced, buying a home or having children can all result in changes in your tax calculations.
The IRS withholding calculator for the 2014 tax year on IRS.gov can help
compute the proper tax withholding. If the result suggests an adjustment is necessary, you can submit a new Form W-4, Employee's
Withholding Allowance Certificate, to your employer.
What should you do if you've discovered an error after your tax return has been filed? You may need to amend your return.
The IRS usually corrects math errors or requests missing forms (such as W-2s) or schedules. In these instances, do not amend your return. However, do file an amended return if any of the following were reported incorrectly:
- Your filing status
- Your total income
- Your deductions or credits
Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed paper or electronically-filed Form 1040, 1040A, or 1040EZ return. Be sure to enter the year of the return you are amending at the top of Form 1040X. If you are amending more than one tax return, use a separate 1040X for each year and mail each in a separate envelope to the IRS processing center for your state. The 1040X instructions list the addresses for the centers.
Form 1040X has three columns. Column A is used to show original or adjusted figures from the original return. Column C is used to show the corrected figures. The difference between the figures in Columns A and C is shown in Column B. You should explain the items you are changing and the reason for each change on the back of the form.
If the changes involve another schedule or form, attach it to the 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Tax Credit, you must complete and attach a Schedule EIC to the amended return.
If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for the prior year, Form 1040X must be filed and the tax paid by April 15 of this year, to avoid any penalty and interest.
You generally must file Form 1040X to claim a refund within three years from the date you filed your original return, or within two years from the date you paid the tax, whichever is later.
Filing an Extension
If you can't meet the April 15 deadline to file your tax return, you can get an automatic six-month extension of time to file from the IRS. The extension will give you extra time to get the paperwork into the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amounts not paid by the April deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.
You must make an accurate estimate of any tax due when you request an extension. You may also send a payment for the expected balance due, but this is not required to obtain the extension.
To get the automatic extension, file Form 4868, Application for Extension of Time to File
U.S. Individual Income Tax Return, with the IRS by the April 15 deadline, or make an extension-related electronic payment.
When preparing to file your federal tax return, don't forget your contributions to charitable organizations. Your donations can add up to a nice tax deduction for your corporation or your personal taxes if you are a member of a flow-through business entity and itemize deductions on IRS Form 1040, Schedule A.
You cannot deduct contributions made to specific individuals, political organizations and candidates, the value of your time or services and the cost of raffles or other games of chance.
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. IRS.gov has an exempt organization search feature,
Exempt Organizations Select Check Tool to see if an organization is
Tax and Property Credits Related to Energy Efficiency
The IRS provides credits for making your home energy-efficient. The Energy Star website contains more-detailed information on these tax credits, including credits for biomass stoves, heating, ventilating, air conditioning, insulation, roofing materials, non-solar water heaters, windows, doors, geothermal heat pumps, small wind turbines, solar energy systems, and fuel cells. You can use Form 5695, Residential Energy Credits, for the 2013 tax year.
Earned Income and Other Tax Credits
Millions of Americans forgo critical tax relief each year by failing to claim the Earned Income Tax Credit (EITC), a federal tax credit for individuals who work but do not earn high incomes. Taxpayers who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.
The IRS estimates that 25 percent of people who qualify don't claim the credit and at the same time, there are millions of Americans who have claimed the credit in error, many of whom simply don't understand the criteria.
EITC is based on the amount of your earned income and the number of qualifying children in your household. If you have children, they must meet the relationship, age and residency requirements. And, you must file a tax return to claim the credit.
Are you eligible for any of these tax credits?
Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns, advises the IRS. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Below are some of the credits taxpayers could be eligible to claim:
Earned Income Tax Credit This is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the EITC. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. For more information, see IRS Publication 596, Earned Income Credit (EIC).
Child Tax Credit This credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see Publication 972, which includes a convenient Child Tax Credit Worksheet
Child and Dependent Care Credit This is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work. There is a limit to the amount of qualifying expenses. The credit is a percentage of those qualifying expenses. For more information, see Publication 503, Child and Dependent Care Expenses.
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 citizens or residents. There are income limitations. For more information, see Publication 524, Credit for the Elderly or the Disabled.
Education Credits There are two credits available, the American Opportunity Credit (formerly called the Hope Credit) and the Lifetime Learning Credit, for people who pay higher education costs. The American Opportunity Credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. 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 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. Also, your adjusted gross income (AGI) must be below a certain amount. For more information, see Publication 590, Individual Retirement Arrangements (IRAs).
There are other credits available to eligible taxpayers. Please use our Contact Form for more information!