One that will make fundamental changes in the way you, your family and your business calculate your federal income tax bill, and the amount of federal tax you will pay. Since most of the changes will go into effect next year, there’s still a narrow window of time before year-end to soften or avoid the impact of crackdowns and to best position yourself for the tax breaks that may be heading your way. Here’s a quick rundown of last-minute moves you should think about making. Read more
Tag Archive for agi
This is the second in a four-part series on home mortgages. (Click here to read Part 1 – The Home Mortgage Interest Deduction) We will examine what can be deducted as home mortgage interest. Interest on the debt is deductible up to the statutory limits on the amounts of deductible debt ($1,000,000 for acquisition debt, $100,000 for home equity debt). Interest on excess debt is personal debt and not deductible. In addition, any amount of home equity or refinanced debt that is not used build, buy, or improve the residence is also classified as non-deductible personal debt.
This article is part 2 of a three-part series which discusses how to determine the amount of the loss for personal use and income producing property, amount deductible, and tax year for the deduction (part 1 can be found here). We will discuss gains, including deferring the gain for income producing property by purchasing replacement property-qualifying property, time period for replacement, realized and recognized gain, and basis of new property in the final installment.
If you are an employee with unreimbursed work-related expenses, you may be able to deduct them as an itemized deduction on Schedule A. You can deduct all unreimbursed employee business expenses incurred in the normal course of carrying out your responsibilities as an employee. Note that employee business expenses are subject to the 2% of AGI limitation, meaning that they must exceed 2% of your adjusted gross income before you can claim the deduction
You can deduct only unreimbursed employee business expenses that are:
• Paid or incurred during your tax year.
• Incurred for carrying on your trade or business as an employee. Read more
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
Generally, taxpayers are allowed to deduct personal exemption allowances of $4,000 (2015) each for themselves, their spouses and their dependents. In addition, taxpayers are allowed a standard deduction or, if their deductions are large enough, itemized deductions.
However, both the personal exemption allowances and itemized deductions are being phased out for higher-income taxpayers. The phase-out begins when a taxpayer’s adjusted gross income (AGI) reaches a phase-out threshold amount that is annually adjusted for inflation.
The phase-out threshold amounts for 2015 are based on taxpayers’ filing statuses, Read more
Millions of taxpayers oftentimes overpay on their taxes every year, simply because they do not take advantage of all the tax adjustments, deductions and credits that they are entitled to. Overlooking some of these tax breaks can be a very costly mistake. Claiming all the adjustments, deductions and credits that you are legally entitled to will ensure that you do not leave money on the table.
There is a distinction between adjustments, deductions, and credits, and we shall proceed to look at these below:
These are subtracted from your total income, to determine your adjusted gross income Read more
IRS Announces 2015 Pension Plan Limitations; Taxpayers May Contribute up to $18,000 to their 401(k) plans in 2015
According to IRS Newswire, on October 23, 2014, Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2015. Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment. Read more
As with all good tax questions, the answer is: It Depends! The new 3.8% tax on your Net Investment Income (NII) only kicks in at the higher adjusted gross income (AGI) levels. So unless you are in the top 3% of earners then the answer is no.
But if your AGI is over the threshold then you will possibly have to pay an additional 3.8% on the NII. The thresholds are $200,000 if unmarried, $250,000 if married filing jointly, and $125,000 if married filing separately.
Once you have determined that your income is over the threshold, you must determine what types of income applies. The IRS, of course, has a handy new form, the Form 8960, for just that calculation. The long and short of it boils down to this. You will pay the additional tax on the lesser of the amount of your NII or the amount of your income over the threshold. Read more
X is for X-rays. I have never had an X-ray, but I’m pretty sure if you are having one that means you maybe broke a bone, so I can’t recommend needing one. When it comes to medical expenses, they are sometimes tax deductible and the rules have changed recently, tied to Obamacare. For years the medical expenses were only deductible when they exceeded 7.5% of your AGI for the year. Starting in 2013 that threshold has increased to 10% of AGI for people under age 65. The 10% threshold will apply to those over 65 starting in 2017. Seems a bit ridiculous that the medical threshold is different for people over 65, but that’s what it is.
Medical expenses that are deductible can be a variety of things. Payments for doctor bills, dentists, specialists, and the services they provide (like x-rays, blood tests, etc.) are deductible. You can also deduct your health or dental insurance if you are paying for it out-of-pocket. If you get your insurance through work it is normally a tax-free fringe benefit. The deduction is only for your out-of-pocket insurance plans. Long-term care insurance is also deductible although subject to a limitation depending upon how old you are at the time. Prescription drugs are also deductible, but that means you need to have a prescription. Going to Walgreens and buying aspirin or bandages are not going to qualify even if they were recommended.
Lastly medical travel or mileage is also deductible. If you drive down to the Mayo clinic for tests, that mileage is deductible. For medical purposes the mileage rate is only 23 cents which is much less than the business mileage rates, but still better than nothing.
Taxes A to Z – still randomly meandering through tax topics, but at least for 26 posts in an alphabetical order