Archive for Milton Boothe

Deducting Gifts To Charity

You may claim as an itemized deduction, any charitable contributions of money or property you made to qualified charitable organizations. Generally, you may deduct charitable contributions of up to 50% of your adjusted gross income, but 20% and 30% limitations may apply in some cases. You may deduct a charitable contribution made to, or for the use of, any organization that is qualified under the Internal Revenue Code.

Defining Charitable Organizations

A qualified charitable organization is a nonprofit organization that qualifies for tax-exempt status according to the U.S. Treasury. Qualified charitable organizations must be operated exclusively for religious, charitable, scientific, literary or educational purposes, or for the prevention of cruelty to animals or children, or the development of amateur sports. Read more

Itemized Deductions: Deducting Interest You Paid

Certain types of interest you pay are deductible as an itemized deduction. The types of interest you can deduct on Schedule A are home mortgage interest, points in some cases, and investment interest.

Home Mortgage Interest

Home mortgage interest is the most common interest deduction on a typical Schedule A, and is any interest that you paid on a loan secured by a main home or a second home. To qualify for the home mortgage interest deduction, the following rules apply:

• You must be legally liable for the loan. Therefore, you cannot deduct interest payments you make for someone else if you are not legally liable to make those payments. Read more

Itemized Deductions: Deducting Taxes You Paid

Certain taxes you have already paid are allowable as itemized deductions. To be deductible, these taxes must have been imposed on you personally, and you must have paid them during the year. The following taxes you paid during the year are deductible as itemized deductions on Schedule A:

• State and local income taxes.
• Real estate taxes (deductible in the year you paid them).
• Personal property taxes charged on the value of personal property.
• Foreign income taxes paid.

Not all taxes paid, however, are deductible. Note carefully, then, that the following taxes are Read more

Itemized Deductions – Medical And Dental Expenses

You can claim a deduction for medical and dental expenses you incurred, but as a word of caution, you should expect a deduction, only if you incurred major unreimbursed medical expenses during the year. This is so, because you can deduct medical expenses only to the extent that they exceed 10% of your adjusted gross income (AGI).

For example, your AGI is $50,000 and your medical expenses total $6,000. Since 10% of $50,000 is $5,000, you can only take a deduction of $1,000 ($6,000-$5,000). The criteria for applying this restriction, from the government’s perspective, is to prevent taxpayers with large salaries from claiming expenses they can certainly afford, while benefiting lower income taxpayers who are burdened by unforeseen medical costs. Read more

Standard vs. Itemized Deductions

In preparing your tax returns, you are allowed the choice of either claiming the standard deduction, or claiming itemized deductions. Your deductions (standard or itemized) are subtracted from your adjusted gross income (AGI) to figure your taxable income. Depending on which choice gives you the greater benefit, you may choose to take your standard deduction, or you may choose to claim itemized deductions; the aim here is to maximize your refund or minimize your tax liability.

The Standard Deduction

The standard deduction is a fixed dollar amount that the government allows taxpayers who do not itemize deductions to deduct from their income. The standard deduction reduces the amount of income that is taxed, and eliminates the need for many taxpayers Read more

Claiming A Qualifying Relative On Your Tax Return

For you to claim a person as your Qualifying Relative, that person must either be:

(a) Related to you (generally by blood, adoption, or through marriage), or

(b) Be a member of your household for the entire year.

There are five tests to determine if you can claim a person as your Qualifying Relative. These tests are as follows:

1) The Not a Qualifying Child Test

If a child meets all the tests to be your qualifying child, that child cannot also be your Qualifying Relative. Also, if that child qualifies to be the Qualifying Child of another person, Read more

Special Test For A Qualifying Child Of More Than One Person (Tiebreaker Rules)

If more than one taxpayer could claim your child, that is, if the child meets the relationship, age, residence, and support test for you and another person(s), tax law allows only ONE person to claim the child as a qualifying child.

You and the other person(s) will therefore have to agree on who will claim the child for a particular year. If you and the other person(s) cannot agree on who will claim the child, the IRS tiebreaker rules will then come into effect, and will decide who will claim the child. The tiebreaker rules state that:

• If only one of the persons is the child’s parent, the child is the qualifying child of the parent. Read more

Claiming Your Exemptions For A Qualified Child: Exceptions To The Residency Test

To claim a child as a dependent, the residency test is one critical test that must be satisfied. The general rule is that the child must have lived with you, sharing the same principal place of abode or home, for more than half of the year. There are, however, some very important exceptions to the general rule, and these apply in the following situations:

Temporary absences

If you, or your child, have to be temporarily absent from the home due to special circumstances such as illness, education, business, vacation, or military service, this is treated as a period of temporary absence. Under this exception, your dependent is considered to have lived with you during the periods of time when either you or your dependent had to be absent from the home, so you will be able to claim the child. Read more

Claiming Your Exemption For A Qualifying Child

Tax law states that you can claim a dependent on your tax return only if that dependent is your qualifying child or your qualifying relative. For your dependent to qualify as a Qualifying Child, four main tests must be met. These tests are as follows:

1. The Relationship Test

For a child to be your Qualifying Child, that child must be related to you in one of the ways described below.

• The child must be your son, daughter, stepchild, eligible foster child, or a descendant of any of them. The child can also be your brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them. (Therefore, this includes a niece or nephew, Read more

Critical Tests For Claiming Someone As A Dependent

You are entitled to one personal exemption for yourself, one for your spouse (if filing a joint return), and one exemption for each dependent that you claim on your tax return. The exemption amounts are generally increased year by year, as adjusted for inflation, and the amount for tax year 2014 is $3,950 ($4,000 for tax year 2015). Three critical tests, however, must be met before you can claim someone as a dependent.

1. The Dependent Taxpayer Test

If you could be claimed as a dependent by another taxpayer, you cannot claim anyone as a dependent on your tax return. This is true even if you have a qualifying child or qualifying relative. Also, if you file a joint return with your spouse, and can be claimed as a dependent by someone else, you and your spouse cannot claim anyone as a dependent Read more

Your Personal And Dependent Exemptions

Claiming your eligible exemptions is very important, because exemptions directly reduce your taxable income. You are entitled to one personal exemption for yourself, one for your spouse (if filing a joint return), and one exemption for each dependent that you claim on your tax return. Knowing the criteria and requirements for claiming these exemptions will facilitate the preparation of your individual income tax return, and will ensure that you do not miss out on important tax benefits.

Exemptions are fixed amounts, calculated on a per person basis, and they reduce the amount of your income that is subject to income tax.
The exemption amounts are generally increased year by year, as adjusted for inflation, and the amount for tax year 2014 is $3,950 ($4,000 for tax year 2015). Each person for Read more

Choosing The Correct Filing Status – Head of Household (HOH)

If you are unmarried, or married but considered unmarried (see below) on the last day of the tax year, you can file Head of Household if the following conditions apply:

(a) You paid more than half the costs of keeping up a home for the tax year, and

(b) A qualified person (see definition below) lived with you for more than half of the tax year.

Filing Head of Household can have substantial financial benefits over filing as a single status taxpayer. In filing as Head of Household, one enjoys lower tax rates and a larger Standard Deduction. Read more