Tax Tips for First Time Filers

Tax Tips for First Time Filers

Tax Tips for First Time Filers

Tax Tips for First Time Filers..Filing taxes for the first time? Don’t let all the experts and jargons overwhelm you. At the end of the day, if you understand some very basic points clearly, you shall pass this test as well. If you are out of the college or just took your first job, it is eminent that you take this step with a lot of seriousness. But not to a level that it becomes a mental block for you. We have outlined some simple tips for you to get through this.

Should you file?

Though this might sound a bit odd, it is essential that find out whether or not you need to file taxes. If a tax payer has mentioned your name as dependent on their tax filing and you had a job which fetched you more than $6300 in a financial year, you will have to file for taxes. If you did not have a job yet managed to earn more than $1050 (could be money from investments, interests etc.) you will need to file your taxes. If you do not belong to either of the categories, you technically need not file taxes. But getting into that habit early on will help you for a smoother transition later on.

Get to it quickly

We all know that April 18th is the last day for filing your taxes. But why even wait for the last day? The earlier you file your taxes, the earlier you receive refunds, if any. Even if you do not finish it immediately, getting started with the process will ensure you are a step closer to it. Because the moment you start the process, you will come to know the different documents needed for the process. One might need to do a bit of research for a few sections. Starting early gives you that time freedom to do these things.

Gather all the documents required

Yes, the previous step will help you find out and eventually gather all the documents that are needed for the filing of taxes. But there are certain other documents that you will need. For an instance, if you are an employee W-2 Form from your employer or Form 1099 if you are a contractor is a must. These forms contain the total amount paid to you for a financial year. While both the forms are expected to be with necessary tax payers by 31st December, for contractors that’s the deadline. Keep a tab on other bigger expenses as well such as charity or education as well.

Being organized is the key

Being organized is more of a life skill that will serve you in different aspects and stages of life. However, it becomes that much more important while dealing with stuff like taxation. Keep a track and copy of all the documents and paperwork related to your job, contracts or money in general. Make it a habit to keep these documents in a single place, which is of course secure. This will ensure you do not run around in the search of documents towards the filing season.

Know what you are doing with your money

There are three simple scenarios. First is the happy situation where you have paid the government exactly what you owe. The second scenario is that you have underpaid your taxes and the third is you have overpaid your taxes. You can find all of these out with the help of some tools. So, do not shy away from using these tools to make you’re a little bit easier. This also helps you keep better control over your money. limited edition
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Un-reimbursed Employee Business Expenses

Un-reimbursed Employee Business Expenses


Employee Business Expenses

Un reimbursed Employee Business Expenses.Paying more taxes is something that not many of us are fond of. If one pays close attention, there are a lot of ways by which you can reduce your tax liability. And yes, these are all legal ways which the IRS has outlined. For individuals who end up spending some money from their pockets when it comes to supporting their jobs, IRS understands their situation. Well, up to some extent at least. There are certain clauses laid out by the IRS under which you can claim for deduction for such expenses.

Itemized Deduction

Any expenses that you incur as part of your job fall into the category of miscellaneous deductions. What this essentially means is that you need to itemize these expenses so that you can avail deductions. All of this simply translates to the fact that taxpayers need to keep a track of all such expenses and maintain a record for the same. You can either do it yourself or hire someone to do it on your behalf. The only reason you might consider hiring someone for this is to skip out all the hard work of doing it on your own.

Since these are itemized deductions, you will not be able to claim the same under standard deductions. Another important word that takes precedence in these deductions is Un-reimbursed. If your employer has paid you back the amount you have spent or had paid in advance for such expenses, you will not be able to claim those. The deductions also won’t be valid if your employer has set aside certain allowances for such expenses.

Another small caveat to such expenses comes into the picture if your employer had paid in advance or has allowances. In such cases, you will have to provide your employer with a detailed account of how much and where the money was spent. This not only bars you from using the expenses for deductions but also adds them as a source of income in line 12 of your W-2 Form. Thus, one needs to be very careful with un-reimbursed employee business expenses.

Allowed Deductibles

The following is a list of items that you can claim under this deduction.

  • Supplies, equipment or tools related to your job.
  • Costs related to the passport for a business trip.
  • Should your employer ask for any physical examinations.
  • A uniform that your employer mandates.
  • Fees related to Licenses and regulatory bodies.
  • Any dues related to the union or similar fees.
  • Taxes pertaining to your occupation.
  • Additional clothing required to support your job such as hard hats, gloves, glasses, shoes etc.
  • Subscription fees for related journals.
  • Any fees that you pay to employment agencies in search of a new job, with the current occupation.
  • Cost of depreciation of computer or other equipment that your employer wants you to work on.

Apart from the above, you can claim deductions for certain travel-related expenses as well.

  • Expenses incurred as part of either getting in or out of business destinations via different modes such as flights, trains, cars, buses etc.
  • Cost of meals while on travel.
  • Lodging expenses while away from home.
  • Any expenses related to laundry and cleaning.
  • Certain expenses related to meals and entertainment only if they are related to the business directly.
  • Money spent on your vehicle for business purposes.
  • Any expenses related to parking, toll, and other similar expenses.

These deductions are subject to a limit of 2% of the Adjusted Gross Income or AGI of a taxpayer. If your unreimbursed deductions do not sum up to 2% of your AGI, you are not eligible for such deductions. omega automatic
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American Opportunity Tax Credit

American Opportunity Tax Credit

American Opportunity

Tax Credit

American Opportunity Tax credit systems are in place to let taxpayers deduct a certain amount from their tax liability to the state or federal government based on different programs. One such initiative is the American Opportunity Tax Credit, or commonly known as AOTC. This tax credit system is designed specifically for college going students, allowing them to settle their college costs via tax credits. AOTC is much more beneficial when compared to tuition deduction since it allows for an actual reduction in taxes that you owe to the government. But there are certain eligibility criteria that one must meet to be able to benefit from this system.

Student Eligibility

A student is eligible to benefit from the American Opportunity Tax Credit system is the person has not completed their four years of schooling. The student must also have enrolled themselves for at least one semester for the financial year into consideration and must main a half time status for the course they have enrolled. Any student having a drug-related offense against their name is automatically disqualified from the program.

Expenses Qualified under the program

Any fees that you pay to an educational institution that is eligible and recognized, you can claim the same for tax credits. The tax credit system is not restricted to colleges and universities alone. It is applicable to post-secondary schools also as long as these schools meet the requirements set by the United States Department of Education Financial Aid Program. As a part of the credit system, you can also claim costs spent on supplies, books, and other equipment necessary as per your course curriculum.

Paying for the expenses

Fees and other expenses that you pay via funds borrowed such as a credit card of loan qualify for the tax credit. There usually aren’t any deductions from those amounts. However, there are restrictions when it comes to tuition grants, tax-free scholarships, Pell grants, or other gifts and non-taxable expenses that you inherit. The credit system also doesn’t cover expenses such as room rent, boarding, food expenses, transportation, or even medical insurance. One can think of these as exclusions.

How to calculate the American Opportunity Tax Credit?

The tax credit system is applicable to one eligible student for a tax year. In the event that you have two dependents who are eligible for the American Opportunity Tax Credit, one only of them can avail the same. Also, if you claim AOTC for one of the students, you cannot claim any other education tax credit systems for the other student. Apart from the above, you also cannot opt for more than one tax credit systems for an eligible student. As per the government guidelines, the tax credit system is applicable to entire amount up to $2000 expenses that are qualified. Any amount exceeding $2000 would fetch a 25% qualification for the tax credit system. And the maximum cap limit is set at $2500, which means you cannot seek for credits beyond this amount.

How to claim the American Opportunity Tax Credit?

American Opportunity Tax Credit can be availed either by a student or another tax payer who declares the student as dependent on their individual tax returns. The IRS provides the Form 8863 for the same purposes. Thus, one must duly fill up the form and ensure that it is a part your personal tax filing. Single tax payers who have the adjusted gross income in the range of $80000 to $90000 are eligible for the credit. Similarly, jointly filing tax payers who have adjusted gross income in the range of $160000 and $180000 are eligible. But tax payers with AGI above $90000 and $180000 for the respective categories cannot opt for this credit.

Mortgage Insurance Premiums

Mortgage Insurance Premiums

Mortgage Insurance Premiums

Mortgage insurance in the simplest of terms is the backup plan for a lender. In the unfortunate event that the borrower is unable to repay the loan, the lender can cash in the mortgage premium and recover the losses. However, there is more to it than what meets the eye. Here are some more details of this rather intriguing insurance and why you should opt for it.

What is it?

Statistics reveal that most home buyers pay less than 20% of the entire property cost as up front or commonly known as down payment. This leaves the lender at a bit of a disadvantage, should the borrower default due to some reason or the other. To overcome such situations, the Mortgage insurance is in place. One can usually find this insurance type on USDA and FHA type of loans. The insurance primarily reduces the risk that a lender takes by providing you with a loan.

This even takes care of certain situations where a borrower might not necessarily be eligible to get a loan of that magnitude. However, this does come at a cost and you must bear that cost. This is like an insurance policy for your mortgage. Since insurance has premiums, you need to pay for the same. These premiums also increase the cost of the overall loan. Most of the times, this insurance premium becomes a part of your monthly installments, thereby reducing its impact.

Does it qualify for Deductions?

As per the PATH or Protecting Americans from Tax Hikes act, you can seek for deductions for mortgage insurance premiums. The Congress put an end to the clause in the year 2015, but the same was extended for a year and was valid through 2016. This deduction is one of those ones that the Congress takes a close look at annually and takes a call whether or not to extend the benefits. The deduction is applicable to families with medium income and eventually nullifies as the earning bracket increases.

Which all loans do qualify for the deduction?

Assuming, that the Congress would extend the benefits of the PATH act, any mortgage loans taken on or after 1st January 2007 qualify for the deduction. The deductions are applicable to first or second home or even home acquisition debt. One must not ideally use the second home for rent purposes. To qualify for the deduction, one must not earn any profits out of the second home. Any sort of refinance loans for the houses also qualifies for the mortgage insurance and its deductions.

Income Bracket

As mentioned earlier, the deduction is not applicable to anyone and everyone. Single tax payers with adjusted gross income of $109,000 and married filing separately tax payers with AGI of $54,500 cannot apply for this deduction. It is applicable for single tax payers with AGI less than $100,000 and $50,000 for tax payers who are married but file taxes separately. If you are not sure about your AGI, take a look at line 37 on your Form 1040.

How to claim the amount?

The amount paid towards mortgage insurance premium is present in Form 1098. As of now, there are no restrictions on the premium amount that you can claim for deduction. This essentially means, you can deduct the entire mortgage insurance premium. The insurance amount paid is itemized and must be mentioned in line 13 of Schedule A. As is the case with everything else, if you have opted for standard deductions, you cannot claim mortgage insurance premiums. But if the Congress doesn’t renew this clause, it might be worthwhile to relook into your mortgage insurance premiums.

Medical & dental expenses, Medicare premiums in My Taxes

Medical & dental expenses, Medicare premiums in My Taxes

Medical & Dental Expenses,

Medicare Premiums in My Taxes


Well, it would be a bit of a stretch to say that most of us don’t want to pay taxes. However, who wouldn’t take a tax deduction if it is available? For all those individuals who are looking out for different ways by which they can reduce their tax liability, here is one effective method of doing so. You can include your Medicare premiums and even dental expenses in tax filing for better deductions. Sure, there are some prerequisites and details that one must consider and they are below.

Deducting Medicare Premiums

A brief look at the regulations and conditions set by IRS and you will quickly understand that you can deduct your Medicare premiums. If you itemize your Form 1040 and list out Medicare premiums and meet certain criterion, it is yours for the taking. The IRS has a clause under which you can easily deduct the premium amount paid for Medicare if it exceeds 10% of your AGI (Adjusted Gross Income). For an example, if your AGI is $20,000 then 10% of it would be $2000. If your Medicare premiums are more than $1500, you can add them as a deductible. The same would be reduced to $1500 or 7.5% of the AGI if the age of the tax payer is more than 65 years old.

Can I include Medical and Dental Expenses?

The short answer is yes you can. In fact, the IRS clubs medical expenses, dental expenses and even Medicare premiums to the same category. Thus, making way for you to claim deductions for yourself, your dependent children or parents and your spouse. The deduction clause remains the same as above. For taxpayers below 65 years, they can deduct any amount exceeded 10% of the Adjusted Gross Income, while taxpayers above 65 year age limit can deduct anything above 7.5%.

Here are some examples of items that you can seek a deduction for medical and dental expenses.

  • Insurance premiums paid for dental care or medical care.
  • Cost of prescribed medicines or insulin.
  • Treatment by any of the following specialists.
    • Dentists
    • Chiropracts
    • Eye specialists
    • Osteopathic Doctors
    • Psychiatrists
    • Physical therapists
    • Psychologists
    • Acupuncturists
    • Podiatrists and so on.
  • Various diagnostic tests such as blood sugar tests, full body scans, pregnancy tests etc.
  • Long term care services that are qualified to do so.
  • Payment towards programs or medications to get rid of smoking (Nicotine patches or gums excluded).
  • Costs incurred during nursing help.
  • Expenses incurred to incorporate a weight reduction program due to conditions such as hypertension, heart related issues, obesity etc.
  • Expenses towards treatment of alcohol or drug addiction.
  • Costs of artificial teeth during dental procedures.
  • Costs of medical aids such as glasses, lenses, wheelchairs, hearing aids etc.

Here are some transportation related expenses you can deduct as part of your Form 1040 itemization.

  • Bus, plane, train or cab fares related to medical treatment.
  • Ambulance costs.
  • Travel expenses of parents who must accompany their kids.
  • Expenses incurred as a part of visiting someone who is mentally ill and the same has been prescribed by the doctors.
  • Expenses of transporting nurses for services such as injections, medications or other treatments.

The IRS covers a long list of items, but also excludes quite a lot of instances. Some of which are:

  • Costs for whitening of teeth.
  • Fees for gym, spa or other health clubs.
  • Consumption of drugs that are not prescribed.
  • Nutritional supplements or other diet related expenses.