From the category archives:

Taxes

Haiti Relief = Tax Deduction for 2009 Taxes

January 28, 2010

in Charitable Giving, Frugal Friday, Taxes

iStock 000011815842XSmall Haiti Relief = Tax Deduction for 2009 Taxes Normally, a charitable contribution must be made during the tax year (1/1 – 12/31) in order to claim it on your taxes. However, on January 22, President Obama signed HR 4462 into law.

Basically, taxpayers can choose to deduct any charitable contributions made to help the earthquake victims in Haiti on their 2009 tax return rather than waiting until their 2010 return (thus getting the tax benefit of their contribution sooner).

Qualifications for 2009 Return Deduction:

Contributions must be made between January 11, 2010 and March 1, 2010.
Cash contributions only (other contributions can still be claimed on the 2010 return).
Only contributions for the relief of victims in areas affected by the earthquake in Haiti on 1/12/10.
The contribution must meet all other requirements for deducting cash contributions.

Records Required for the IRS:

For those that made a $10 contribution via text message, a telephone bill showing the name of the donee organization, the date of the contribution, and the amount of the contribution is sufficient
Contributions less than $250: You need a bank record such as canceled check, bank statement or credit card statement, a receipt from the organization, or a payroll deduction record
Contributions greater than $250: You need written acknowledgement from the charitable organization or payroll deduction record

I know that most of us don’t make charitable contributions solely for the tax write off, but do you plan on deducting them in 2009 or would you rather wait until 2010? For more frugal ideas, please visit Life as Mom.

Of course, please consult your personal tax adviser to determine when it would be most beneficial for you to take the deduction.

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Five Additional Stimulus Plan Tax Credits

April 21, 2009

in Taxes, Tightwad Tuesday

Do you know all the key tax credits and deductions from the latest stimulus plan? If you don’t, you are in danger of doing what one of my tax clients did last year – he purchased all new windows for his home, thinking that he would be able to get a credit for them. However, he would have been able to get a credit in 2007 and a credit in 2009 (as long as he followed certain guidelines), but Congress did not allow the credit in 2008. So, he spent $8,000 in a year that it had no taxable benefit to him.

Previously, I discussed the Making Work Pay Credit and some of the benefits for the unemployed, and today I’ll talk about the rest of the main provisions in the bill.

First-time Homebuyer Credit – Most people know about this credit, but it can get confusing because there was a credit available on your 2008 taxes for $7,500 where the buyer has to pay the credit back over 15 years ($500 a year). However, in the latest stimulus plan, it has been changed to an $8,000 refundable tax credit (10% of the purchase price, up to $8,000) for first-time homebuyers who purchase a home between 1/1/09 and 12/1/09. The $8,000 does not have to be paid back. A first-time home buyer is someone who has not owned a principal residence during the three-year period prior to the purchase, and the credit starts phasing out at $75,000 ($150,000 for a joint return).

Nonbusiness Energy Property Credit – You can get a credit of 30% of the cost, up to $1500 for certain energy efficient improvements that you make to your house in 2009 or 2010. Not all improvements qualify; it usually only includes products at the highest efficiency levels. See this article for more information.

American Opportunity Tax Credit -This credit is similar to the Hope Credit, except that it can taken during any of the 4 years of study (instead of just the first two). During 2009 and 2010, the Hope Credit has been expanded to up to $2500, and 40% of it is refundable (meaning available for lower-income taxpayers who may not have qualified in the past). The credit phases out at $80,000 ($160,000 for joint filers).

Section 529 plan distributions – Congress has expanded the definition of qualified higher education expenses to include computer and related equipment to be used for college. In 2009 and 2010, you will be able to use your 529 plan to purchase computers (and you won’t pay tax on your withdrawal).

Vehicle Purchase – If you purchase a new vehicle after 2/16/09 and before 2010, you will be eligible for a tax deduction for any state and local sales tax that you paid on the new vehicle costing up to $49,500. Fortunately, you can claim it even if you don’t itemize on your 2009 return. The deduction begins phasing out at $125,000 ($250,000 for joint filers).

Do you plan on taking advantage of any of these new tax credit this year? Do you think these will make doing your taxes next year more complicated? For more frugal ideas, please visit Lynnae @ Being Frugal.

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Help for the Unemployed

April 16, 2009

in Frugal Friday, Layoff, Taxes

Has someone in your family lost their job recently? With the unemployment rate at 8.5% in March (and with my state’s rate the highest in the nation at 12%), it’s likely that unemployment has affected someone you know.

Tia from Tia’s Saving Cents wrote a guest post for me several months ago on how she’s preparing for her own upcoming unemployment. And, as part of the most recent stimulus plan, the government is also offering a little help.

Taxation on Unemployment Compensation – Did you know that you pay taxes on any unemployment compensation that you earn? I think many people are surprised by that, and many fail to have any taxes withheld from their payments, which sometimes causes them to owe money come tax time. However, for 2009, the first $2400 of your unemployment benefits will be excluded from taxation. So, when you file your 2009 return (in 2010), you will be able to reduce your unemployment income by $2400 (but not below $0).

Increased Unemployment Compensation – Unemployment compensation is also being increased by $25/week and the amount of time that you can draw unemployment is being extended.

COBRA – When you leave your employer, they must offer you and your family COBRA for your medical insurance (a continuation of your coverage). However, it is often very expensive, because you are now paying not only your portion of the premiums, but also what your employer pays, which is usually a much higher percentage than what the you, the employee, pays. For most people, the cost is just too expensive to pay during a time of unemployment. As part of the stimulus plan, the government is offering a federal subsidy of 65% of your monthly COBRA payments for 9 months as long as you were involuntarily terminated between 9/1/08 and 12/31/09. This coverage is phased out for higher income taxpayers. Your employer should notify you if you are eligible, so ask them if you are unsure about it.

Access to free Visits to the Take Care Clinic at select Walgreens – Walgreens is offering free healthcare visits to their patients and families who have recently lost their jobs and are uninsured. For more details, click here.

Have you been affected by unemployment? If so, did you know about these changes to the law and taken advantage of them? Do you know of any other companies offering specials for the unemployed? For more frugal tips, please visit Life as Mom.

2009 Making Work Pay Credit

April 7, 2009

in Taxes, Tightwad Tuesday

This year, Congress passed the American Recovery and Reinvestment Act. In real people’s terms, it’s the stimulus bill. Well, what’s in it for you?

If you think back to previous stimulus packages, the key to the package was a rebate check that you received in the mail. You will also receive a rebate this year, but it’s a bit different than in the past.

It’s called the Making Work Pay Credit, and it’s a credit of up to $400 for a single person and $800 for a married couple (or 6.2% of your earned income, if that amount is lower than $400 or $800). The credit phases out (meaning you are not eligible for the full amount) with a modified adjusted gross income of $75,000 for a single person and $150,000 for a married couple. Full phaseout (meaning you will no longer eligible for the credit) occurs at $95,000 for an individual and $190,000 for a couple.

However, this time, instead of a rebate check in the mail, you will receive your rebate each paycheck for the rest of year by the employer reducing the amount of income tax withheld in each check. Sounds great, right? You get a little bit extra in each paycheck and we avoid the huge fees to mail out the checks.

But…workers need to be careful that the correct amount for the rebate is really being given to them. Individuals with multiple jobs as well as dual income married couples need to make sure that they are not too little withheld from their paycheck. Each employer cannot account for the other income that an individual/family receives.

So, in the case of an individual with multiple jobs, he may received $400 back from each of his employers. When he goes to file his taxes next year, he’ll still owe the $400 in taxes (or have a $400 less refund).

The same applies for a dual-income couple. It appears that the employer withholding tables give back about $600 for a person filing married on is W4. So, if you have 2 married individuals getting back $600 over the course of the year, you will receive $400 too much.

How can you avoid owing taxes next year?

If you are in one of the situations I outlined above, you can adjust your W4 by recalculating your exemptions or you can simply figure out how much overage you are receiving and ask for that amount to be added to your withholding. Don’t forget to change it back at the beginning of next year, though.

How do you plan to use your extra money each month? Do you plan to spend it, use it for debt repayment or save it? For more frugal ideas, visit Being Frugal.

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Save on Healthcare with a Flexible Spending Account (FSA)

March 5, 2009

in Frugal Friday, Taxes

Did you know that you can deduct your medical expenses on your taxes (if you itemize)? However, your expenses need to be over 7.5% of your adjusted gross income, and you can only deduct those expenses over the 7.5% threshold. For many families, that 7.5% threshold is many thousands of dollars, so they are unable to deduct any of their expenses.

However, there is a plan offered by many employers called a Flexible Spending Account (FSA) that lets you use pretax dollars to pay for medical expenses. By using pretax dollars, you’re automatically saving the money you would have paid in taxes.

So How Does It Work?

Each year, you need to estimate your expected medical expenses for the year and elect an amount to put into your FSA account. The catch is that you need to use the money during that year or you will lose it. So, you need to balance not adding enough money to cover all your medical expenses vs. having too much and losing it at the end of the year. You can make your election once per year during annual enrollment. Since that usually happens toward the end of the year for most people, you can use this time to figure out how much you really do spend on medical items.

Some future expenses are easy to calculate. For example, you may know that both your kids will need to get their annual physical, and the copay is $15 for each. Plus, you may know that you need contacts each year, and they cost $250 a year. Add that up, and you know you’ll have at least $280 in medical expenses for the year. And that $280 can save you $42 if you’re in the 15% tax bracket (and even more for higher tax brackets).

You can use your FSA account for a wide variety of items such as over the counter medications, doctor copays, glasses/contacts, etc. Click here for a list of eligible expenses. If you look at your drugstore receipts, you will be able to see which items you purchased are eligible for your flexible spending account.

We elect money every year for our FSA, and it came in handy today. My 2 year old was crying and acting very unlike himself in our mom & tot class. I was trying to figure out what was wrong, and finally noticed that he was holding him arm funny and wasn’t using it at all. I thought perhaps he had injured it when he threw himself on the floor before class (a wonderful 2 year old tantrum). By having the FSA, I was able to save money on the $50 copay at Urgent Care.

By the way, he is fine. They think he might have popped his elbow out, but the x-ray technician probably popped it back when she took x-rays. By the time the doctor came to see us, he was fine and using him arm again with no signs of it hurting. Figures…but at least I saved my tax money on the copay (and I’m thankful he’s OK) .

For more frugal ideas, visit Biblical Womanhood.

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Keep Track of Your Donations

March 3, 2009

in Taxes, Works for Me Wednesday

Do you donate items to a non-profit organization like Salvation Army or Goodwill? If so, do you claim those items on your taxes (if you itemize)?

Valuing non-cash contributions can be difficult to do, since we all have such differing views on how much an item is worth (just visit any garage sale). Here are some ways to help you maximize your contribution and stay legal in case of an audit.

When I have a donation ready to drop off, I enter every item in It’s Deductible Online (it’s free to use). You can see the value of every item that you enter and print off a list to keep with your tax documents.
I also take a picture of my pile of stuff to donate as visual proof in case of an audit.
When I make the drop off (or an organization picks it up), I make sure that I get a receipt with the date and I staple my list to the receipt.
File your receipts in your 2009 tax file (you have one, right?)
At the end of the year, you can log in to your account and see the valuation of all your donations for the year. Use that information to enter your deductions for taxes (if you itemize).

That’s how I keep track of my non-cash donations. A few other sites that list values are:

How do you keep track of your non-cash donations? For more ideas that work for others, visit We are THAT Family.

Of course, please consult your tax professional regarding the tax laws and your situation. These are just examples of how I organize my non-cash contributions.

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Works for Me Wednesday – Planning for Tax Season

December 17, 2008

in Taxes, Works for Me Wednesday

As the saying goes, “Nothing is certain but death and taxes”. As the year comes to an end, we all have to prepare to file our taxes.

Here are some things that you can do to make tax season a little bit easier.

Make sure that you make any charitable contributions (both cash and non-cash) by 12/31 to count for the 2008 tax season. I wouldn’t recommend waiting until 12/31 to donate to the Salvation Army, because the drop-off line gets really long (wonder how I know that, huh?).

You also need to make any contributions to your 529 plan before the end of the year (you have until 4/15 to contribute to your IRA). If you don’t contribute to your own state’s 529 plan, it’s probably not deductible on your state taxes, so it doesn’t matter when you contribute.

If you itemize, pay all tax deductible bills before the end of the year. I also usually schedule my January mortgage payment for a day or two before the end of the year to make sure that it is processed as a December payment. Also, since my birthday is in January, I usually get my car registration (personal property taxes) at the end of December. I pay it before the end of the year to claim it on the this year’s tax bill. If your property taxes are due early in the year, you may want to pay them before the end of this year, if possible.

Make sure that you use up all your 2008 Flexible Spending Account (FSA) money before the end of the year (and claim it by the deadline for your plan). An FSA, is a “use it or lose it” plan, so if you have money left over at the end of the year, you lose it. If you don’t have an FSA, you might want to look into it for next year. It’s basically a plan where you can contribute money pre-tax to an account where you use the money to pay for medical expenses. Since you’ll lose it, if you don’t use it, I’m usually conservative in how much I contribute, but I always add known expenses like well-child visit copays, my contact lenses, etc.

If you are going to have a large capital gain (ha! ha! this year), then you might want to sell some loser stocks to offset the gains.

Gather all your receipts. If you did any online surveys or had any blog income, you need to claim that money as income, even if you don’t get a 1099 form from the company. You can, however, claim any expenses that you paid to earn that money, though, like a percentage of your internet bill, advertising, etc.

Keep track of your final tax result (balance due or refund). For the past 5 years or so, I’ve kept an Excel spreadsheet where I track what my tax refund (or amount owed) is expected to be at any time. Although my husband’s salary and tax contributions are steady, I was working from home, and I made different amounts each month with no tax deductions. So, I wanted to make sure that we weren’t going to owe a lot of money at the end of the year.

That’s what works for me! For more ideas, visit Rocks in my Dryer.

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