Lots of us have a hobby – whether it’s collecting stamps, raising honeybees, restoring old Jeeps, or mounting a wild-cat – and sometimes these hobbies can produce income. If you have a hobby that makes money, you may need to claim this money as income, net of your expenses, on your tax return. Recently the IRS published their Summertime Tax Tip with Five Tax Tips about Hobbies that Earn Income, providing useful information about income-producing hobbies. The text of the Tip is below: Five Tax Tips about Hobbies that Earn Income Millions of people enjoy hobbies. Hobbies can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income from hobbies is different from how you report income from a […]
When you have a canceled debt, you may think you’re done with that old nuisance. Unfortunately, the IRS sees it otherwise. Technically, since you owed money beforehand and now you don’t, your financial situation is increased by the amount of canceled debt. When you have an increase to your financial situation, this is known as income. And income, as you know, is quite often taxable – but sometimes there are ways to exclude the canceled debt from your income for tax purposes. The IRS recently issued a Tax Tip (Tax Tip 2016-30) which details some important information that you need to know about canceled debt, including HAMP modifications and other items. The actual text of the Tip follows: Top 10 Tax Tips about Debt Cancellation If your lender cancels part or all of your debt, it is usually considered income and you normally must pay tax on that amount. However, […]
When filling out your tax return, it’s allowable to deduct the amount of your regular IRA contribution when filing even though you may not have already made the contribution. You’re allowed to make an IRA contribution for tax year 2015 up to the original filing deadline of your tax return. This year, that date is April 18, 2016. The problem is that sometimes we file the tax return way early in the year, and then we forget about the IRA contribution. As of the posting of this article, you have 1 week to make your contribution to your IRA to have it counted for tax year 2015. What To Do If You Miss the Deadline If you don’t make the contribution on time, you’re in for some nasty surprises unless you take some corrective actions. If you find yourself on April 19, 2016 without having made your IRA contribution and […]
When a child has unearned income from investments in his or her own name, taxes can be a bit tricky. Depending on how much the unearned income is, part of it may be taxed at the child’s parent’s tax rate, for example. Recently the IRS published their Tax Tip 2016-52, which details What You Should Know about Children with Investment Income. The text of the Tip is below: What You Should Know about Children with Investment Income Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five important points to keep in mind if your child has investment income: Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust. Parent’s Tax Rate. If your child’s total investment income is […]
Unless you’ve been under a rock for the past several years, you know that this time of year is tax season. If you haven’t already filed your 2015 income tax return, of course you’ve got some work ahead of you. Unfortunately filing your tax return often results in errors – and these can be quite costly in terms of delays in processing as well as potential penalties and interest if your error results in underpayment of tax. In addition, an error on your return could result in missing out on refunds or credits that you are entitled to. Recently the IRS issued Tax Tip 2016-42, which lists out 9 common filing errors that they see, and tips to avoid the errors. The actual text of the Tip follows: Avoid Errors; File an Accurate Return The IRS encourages you to file an accurate tax return. Take extra time if you need […]
Many taxpayers are receiving a new form in the mail this tax season – Form 1095, either A, B, or C. This is because of the Obamacare law which requires that taxpayers have healthcare coverage. Form 1095 provides documentation of the taxpayer’s coverage by healthcare insurance. Depending upon the type of coverage you have, you will receive a certain type of form. And what should you do with this form? Form 1095 A If you have coverage through the Health Insurance Marketplace (established as a result of Obamacare), you’ll receive Form 1095-A. This form is used when you fill out your income tax return for the year, so that your tax credit for the healthcare premium can be reconciled, especially if you received the premium credit in advance. Form 8962 is filled out and filed with your tax return, using the information in Form 1095 A. If your advance payments […]
Recently the IRS issued a memo regarding the recent uptick in the occurrence of email phishing scams this year. Below is the text of the warning memo (IR-2016-28): Consumers Warned of New Surge in IRS E-mail Schemes during 2016 Tax Season; Tax Industry Also Targeted WASHINGTON – The Internal Revenue Service renewed a consumer alert for e-mail schemes after seeing an approximate 400 percent surge in phishing and malware incidents so far this tax season. The emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. The phishing schemes can ask taxpayers about a wide range of topics. E-mails can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information. Variations of these scams can be seen via text messages, and the communications are being reported in every section […]
Individuals needing to take their required minimum distributions (RMD) for 2016 may consider having all or part of their RMD distributed as a Qualified Charitable Contribution (QCD). In order to qualify, the following rules must be met. The individual taking the QCD must be age 70 ½. The maximum allowed QCD is $100,000 per individual, annually. The QCD must come from an IRA. QCDs from 401(k)s, 403(b)s, 457(b)s, SEPs, SIMPLEs are not permitted. An individual may roll over an amount to their IRA and then made the QCD. The QCD is counted toward the individual’s RMD for the tax year. If the RMD was already taken, the QCD cannot be retroactively made. The QCD must be made directly to the charitable organization. Generally, the charity must be a public charity. The Protecting Americans from Tax Hikes (PATH) Act of 2015 made allowing QCDs from IRAs permanent. The tax benefit from […]
As individuals begin to file their tax returns for 2015 here are some tax credits that some individuals may qualify for to help reduce, if not eliminate their tax liability. Child Tax Credit. This credit may be worth up to $1,000 per child, depending on income. The child must be under age 17 at the end of 2015, as well as be a dependent and a US citizen. Additional information can be found in Publication 972. The American Opportunity Tax Credit. This tax credit for education expenses is allowed for parents for up to the first four years of post-secondary (college) education. The benefit of this credit is that it is a “per student” credit. This means the credit can be taken for multiple children in college. The maximum credit per student is $2,500. Additional information can be found here. The Lifetime Learning Credit. Like the AOTC, this credit can […]
Given that it the start of tax season and individuals will be gathering and preparing their 2015 tax return information, I’d thought I’d put together some basic tax tips. Individuals may consider thinking about these items in order to have a smooth and (hopefully) stress-free 2015 tax season. Additionally, I’ve included a link to our 2015 Tax organizer. Please feel free to use it at your convenience to get your “tax ducks in a row”. Furthermore, please let us know if you’d like us to prepare and file your taxes for you. Many current clients have found Blankenship Financial to be cost effective and efficient compared to other big-named tax preparation services. As Enrolled Agents both Jim and I are well qualified to handle most tax matters and returns. And now with the tax tips… Beware the non-tax man cometh! Each year we field calls from clients and prospective clients […]
There are many myths about income taxes that are just plain wrong. But there is one income tax myth that is likely the most hurtful to you financially – and that is the idea that a big refund should be your goal. The actual goal, counterintuitive as it may sound, should be to owe some tax when you file your return. You may have heard this explanation before: When you have a big refund every year, you’re effectively loaning money to the government throughout the year, and getting nothing for it. And then when you get that big tax refund, what do you do with it? The responsible thing would be to put it in some sort of savings vehicle – but how many folks actually do this? Statistics show that far too few of us think saving first when we have extra money. Too often we use the money […]
The IRS recently announce the standard rates for business mileage deductions, along with the rates for moving, medical travel and charitable travel. There were reductions in the primary categories, as you will see in the list below. This is reflective of the reduction in fuel costs over the past year, and is part of a study done annually to determine the fixed and variable costs of operating an automobile. As of January 1, 2016, the following standard rates apply for operating a car, pickup, van, or panel truck, for the various categories: 54¢ per mile for business (was 57.5¢ per mile in 2015) 19¢ per mile for moving purposes (was 23¢ in 2015) 19¢ per mile for medical purposes (also was 23¢ in 2015) 14¢ per mile for charitable purposes (unchanged) The standard mileage rates are used by anyone who keeps a log of miles for the various categories to […]
Hopefully this will never happen to you but in the unfortunate event you become of victim of tax fraud there are some steps that you can take to help alleviate the concern that someone has stolen your identity to file a fraudulent tax return in order to receive the refund. Generally, the first sign of fraud appears when you try to file our return electronically. Most e-file providers receive acknowledgements from the IRS that the return was successfully e-filed. If a return is rejected, a code will return with the rejection indicating what the issue is. For example, a sign of fraud will indicate that the Social Security numbers used to file your return were previously used in the same tax year for another return. If you know you didn’t previously file, then fraud is likely. If you feel you’re the victim of fraud, here’s what you can do: Contact […]
So you’re up against the deadline for filing your taxes, and when you run the final numbers you discover that you’re going to have to pay a boatload of tax. Panic-stricken, you look at your bank account and see single digits, and there’s nowhere near enough left over on payday to make the tax payment. What should you do? Go ahead and file your tax return on time, even if you can’t pay. If you have all of the information to file a correct tax return on time, you will avoid penalties for not filing. You’ll still have penalties for not paying on time, but at least you’re not compounding the problem by adding failure to file penalties as well. (In another article we’ll cover what to do if you don’t have all the information you need to file a correct tax return by April 15.) Recently the IRS issued […]
Since we’re in the middle of income tax preparation season, I thought it was appropriate to share some of the tips that the IRS has put forth. Today’s tip is to take advantage of direct deposit for your tax refund. It can be very handy to have this option specified on your tax return, as you’ll see below. It’s faster, more secure, and much more convenient than the old paper check method. Below is the text of IRS’ Tax Tip 2015-23, which details some of the reasons that it makes sense to use direct deposit for your tax refund.
In case you forgot to take your required minimum distribution (RMD) for 2014 there’s still hope in order to avoid the 50% (yes, that’s FIFTY percent) penalty of the amount not withdrawn. If you missed taking the RMD for 2014 here’s what you can do. According to the IRS the penalty may be waived if you can establish that it was due to reasonable error that you didn’t take the RMD and that reasonable steps are being taken to remedy the error. That is, take the 2014 RMD right away (or as soon as you can let your custodian know) and it might not be a bad idea to take the RMD for 2015 as well (just to be on the safe side). Once that’s done you or your tax professional need to fill out Form 5329 as well as a letter explaining the reason for not taking the RMD. […]
For 2015 the IRS has given the new limits regarding retirement contributions as well as estate and gift tax exemptions. Regarding retirement contributions employees may now defer $18,000 annually to their employer sponsored plan including a 401k, 403b, and 457 plans. This is an increase from last year’s $17,500 amount. Additionally, employees age 50 or older can now make an age based catch-up contribution of $6,000 which is a $500 increase from last year’s $5,500 amount.
As the end of the year approaches many employers will pay and many employees will receive year-end bonuses. While often the icing on the cake for a productive year employee should be aware of the tax consequences of their bonus. Percent vs. Aggregate Method When it comes to taxing the bonus an employer may choose the percentage method versus the aggregate method. Under the aggregate or wage holding bracket method the employer will use the withholding tables generally used for the employee normal paycheck. Then, the supplemental wages are aggregated with the employee’s normal pay and taxes are withheld accordingly.
The end of the year, especially around the holidays, is a time when many folks’ thoughts turn to charitable giving. Many opportunities present themselves, from the gentleman with the bell and the red kettle to our local food and coat drives. With this in mind, the IRS recently published their Special Edition Tax Tip 2014-13 which details six tips for charitable giving. The actual text of the Tip is listed below. In addition to those tips, I’ll offer one more: if you are interested in utilizing the Qualified Charitable Distribution option from your IRA – presently this option has not been extended for tax year 2014. It’s possible that it might be extended yet this year, so check back here – we’ll keep you posted.
Even though there are only a few more weeks left in the calendar year, there are a few things that you can do to avoid some serious and consequential tax surprises come April next year. The IRS recently published their Special Edition Tax Tip 2014-21 which details some of the steps you could take now to avoid these surprises. Still Time to Act to Avoid Surprises at Tax-Time Even though only a few months remain in 2014, you still have time to act so you aren’t surprised at tax-time next year. You should take steps to avoid owing more taxes or getting a larger refund than you expect. Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return: