Tax Tips

Credits and Deductions

Earned Income Credit

The EIC is designed to help low-income workers continue working. As long as your income is below specified amounts and you meet certain other tests, you may qualify for this credit. Plus, the EIC is a refundable credit, meaning that once your tax gets down to $0, the rest of the tax credit is refunded to you. For Tax Year 2013, that means you could get up to $487 if you don’t have any qualifying children, $3,250 if you have 1 qualifying child, $5,372, if you have 2 qualifying children, or $6,044 if you have 3 or more qualifying children — just for filing a tax return.

EIC Requirements

To qualify for the Earned Income Credit (EIC), your earned income and adjusted gross income must be less than $14,340 with no qualifying children, $37,870 with 1 qualifying child; $43,038 with 2 qualifying children and $46,227 with 3 qualifying children. Increase these amounts by $5,340 if you are married filing a joint return.

A qualifying child must pass the relationship, age and residency tests.

Claiming the EIC without a Qualifying Child

If you meet the requirements above, but don’t have a child who meets the relationship, age and residency tests, you must meet all of the following conditions to claim the EIC:

  • You must be at least 25 and younger than 65 at the end of the year.
  • You don’t qualify as a dependent of another person.
  • You must have lived in the U.S. for more than half the year.
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Child Tax Credit

The Child Tax Credit is a credit worth up to $1,000 for each qualifying child under the age of 17. If you have 4 children, the credit can cut your tax bill by up to $4,000. Remember, a credit offsets your tax bill dollar for dollar.
Child Tax Credit for Individuals with Higher Incomes
The Child Tax Credit is available regardless of your filing status. However, your credit is reduced if your modified adjusted gross income (MAGI) is more than:

  • $110,000 if Married Filing Jointly
  • $75,000 if Single, Head of Household or Qualifying Widow(er)
  • $55,000 if Married Filing Separately

Available Education Credits

Claim the American Opportunity Credit for qualified expenses paid during the first 4 years of higher education, up to $2,500 per student per year. Forty percent (up to $1,000) of the credit is refundable.
Claim the Hope Credit for qualified expenses during the first 2 years of higher education at an eligible institution, up to $1,800 per student per year. You can claim this credit only if you choose to not claim the American Opportunity Credit for all eligible students.
The Tuition and Fees Deduction allows you to deduct up to $4,000 of qualified education expenses.
Higher education expenses that don’t qualify for the Hope or American Opportunity credits may qualify for the Lifetime Learning credit. (20% tax credit of up to $10,000 of qualified expenses)

You may be able to deduct up to $2,500 of interest payments on a qualified student loan.

Charitable Contributions

You can deduct your contributions to charitable (non-profit) organizations only if you itemize you deductions.
You can deduct mileage or vehicle expenses if you use your car for charitable purposes.
Your deduction for charitable contributions generally is limited to 50% of your adjusted gross income.

Moving Expenses

Even if you don’t itemize income tax deductions, you could deduct moving-related expenses. Your move must meet the following qualifications:

  • Your move must be job-related.
  • Your new job would have increased your commute by more than 50 miles if you hadn’t moved.
  • You must be employed full time for at least 39 weeks during the 12 months after you move. If you’re self-employed, the applicable figures are 78 weeks and 24 months, respectively, and at least 39 of the weeks must be in the first 12 months.
  • Your moving expenses can’t be reimbursed by your employer.
Out-of-pocket Job Expenses

Keep track of job expenses not reimbursed by your employer. You could deduct these costs:

  • Driving expenses (the non-commuting kind)
  • Travel expenses
  • Uniforms
  • Union dues
  • Continuing education expenses
Self-employment Tax Deductions

If you’re self-employed, you could qualify for additional income tax deductions. If you work out of your home, there are even more opportunities to claim your expenses. Here are a few examples:

  • Deduct half of your self-employment tax.
  • If you use a part of your home exclusively and regularly for business, you can deduct the business portion of rent, mortgage interest, real estate taxes, utilities, insurance and repairs.
  • You can establish a retirement plan that may allow you to make contributions that exceed the amount you can contribute to a traditional IRA or Roth IRA. This deduction is not allowed for self-employment tax purposes.
Itemized Tax Deductions

If total itemized tax deductions are more than the standard deduction, it’s usually a good idea to itemize. For most taxpayers, purchasing a home makes it worthwhile to itemize deductions because they can deduct interest, real estate tax, and, for loans taken out after 2006, certain mortgage insurance premiums. Here are some popular (and commonly overlooked) itemized deductions not related to home ownership:

  • Medical expenses — In addition to what you’ve spent on doctors, hospitals and medicine, other tax deductible items include health insurance premiums, prescription eyeglasses and contact lenses, hearing aids, medical transportation, equipment for disabled people, and nursing home expenses.
  • State and local income taxes — This category includes income tax or sales tax and personal property tax.
  • Charitable contributions — These include cash and property such as new and used household goods and items, securities, and vehicles donated to qualified charitable organizations. Volunteer expenses also can be deducted.
  • Casualty losses — If you suffered a loss because of theft, fire, storm damage or other casualty, you can deduct an unreimbursed loss if it is more than the sum of $500 and 10% of your adjusted gross income.
  • Unreimbursed out-of-pocket job expenses — Tax-deductible expenses include vehicle expenses (other than commuting), travel expenses, uniforms, union dues and continuing education expenses.
  • Miscellaneous expenses — Safe-deposit box fees, investment expenses, tax preparation fees and certain legal fees are examples of miscellaneous tax deductions. The tax deduction for this category of expenses is allowed only for the total of these expenses and unreimbursed job expenses that is more than 2% of your adjusted gross income. Note: There are a few miscellaneous tax deductions that are not subject to the 2% floor. These include repayments of amounts exceeding $3,000 that you previously included in your income, gambling losses, estate tax on income in respect of a decedent, and a decedent’s investment in a pension.
Above-the-line Tax Deductions

If you qualify, you can claim these tax deductions even if you don’t itemize. There are also above-the-line tax deductions for self-employed individuals.

Student Loan Interest Deduction — up to $2,500

Tuition and Fees Deduction — up to $4,000 of qualified higher education expenses

Moving expenses — the cost of moving your family and belongings to a new job location

Alimony paid

Military reservists deduction — a tax deduction for unreimbursed travel expenses for reservists who travel more than 100 miles from home and stay overnight

Traditional IRA contributions — up to $5,000 ($6,000 if 50 or older)

Contributions to HSAs (health savings accounts)

Above-the-line tax deductions for self-employed individuals:

Half of your self-employment (Social Security and Medicare) tax

100% of self-employed health insurance premiums for yourself and family

Contributions to self-employed retirement plans, such as SEPs and SIMPLE plans

Schedule C Tax Deductions

If you own your own business, some additional tax deductions apply to you. These are claimed directly on your business schedule, called a Schedule C. (Note: Farmers use Schedule F and owners of rental property use Schedule E.)

  • advertising and promotional costs
  • business liability insurance
  • legal and professional services
  • car and truck expenses
  • wages, employment taxes, employee benefit plans and contributions to employee retirement plans
  • home office expenses
  • depreciation

For other tax deductible items, see the schedules. There are many rules and limitations pertaining to some of these tax deductions. Be sure to discuss them with Bell Tax Service

Standard Mileage Rates
Type of Use 2013 2014
Business 56.5¢ per mile 56.5¢ per mile
Charitable 14¢ per mile 14¢ per mile
Medical 24¢ per mile 23.5¢ per mile
Moving 24¢ per mile 23.5¢ per mile

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