Tax Time: Making the most of deductions, credits and local resources
It’s that time of year again – tax time.
As W-2s and 1099s begin to arrive in the mail, taxpayers begin gathering receipts for itemizing deductions. Preparing your taxes doesn’t have to be drudgery, and can actually be exciting for those anticipating a refund of taxes paid in (or even more). For people with children, the Earned Income Tax Credit (EITC) can be a wintertime windfall of money to pay off debts, invest in much needed items, and save for that inevitable rainy day.
Did you know that workers eligible for EITC might receive up to $5,891 by claiming the credit on their 2013 Federal tax returns? They can receive even more if they live in a state (like NC) with a similar credit. To top it off, there are even resources available to have your taxes prepared free of charge.
First though, what is EITC and who qualifies? The Earned Income Tax Credit is for workers who don’t earn a high income and who meet certain eligibility requirements. Generally, income and family size determine a taxpayer's eligibility and the EITC amount a taxpayer can receive. If you worked and earned under $50,000, you may qualify. The basic requirements are:
• Have a valid Social Security Number (if you are filing a joint return, your spouse also must have a valid Social Security Number);
• Have earned income from employment or from self-employment;
• Have a filing status other than married filing separately;
• Be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return;
• Not be a qualifying child of another person (if you are filing a joint return, your spouse also cannot be a qualifying child of another person);
• Not have investment income over a certain amount;
• Not file Form 2555 (PDF) or Form 2555-EZ (PDF) (related to foreign earned income), and
• Have a qualifying child who meets four tests (the Age, Relationship, Residency and Joint Return tests) OR: be age 25 but under 65 at the end of the year; live in the United States for more than half the year; and not qualify as a dependent of another person.
If you qualify, the amount of your EITC will depend on your filing status, whether you have children, the number of children you have, and the amount of your wages and income last year. You can find out more at www.irs.gov/eitc. While the criteria differ based on your income and how many children (or if you don’t have children), it is worth checking out.
Families and individuals who earn less than $52,000 can get their income taxes filed free (federal and state). IRS trained volunteers are available in most communities to provide VITA services – Volunteer Income Tax Assistance. To find a location near you simply check with the IRS by calling at 1-800-906-9887 or checking online at http://irs.treasury.gov/freetaxprep/ .
When you go to a VITA center for income tax preparation, you will need to take with you a few things: social security cards for everyone on your return (including children), photo ID of taxpayer and spouse, all income information (W-2s, 1099s, business income, etc.), information on deductions for donations, medical expenses, and property taxes (as well as others). Please total these receipts by type (i.e. out-of-pocket medical expense), because the volunteers at these sites usually do not have time to go though your papers. Remember that gambling/lottery proceeds must be included on your tax return as income. Any gambling losses/costs can be deducted if you itemize deductions, up to the amount of winnings. Remember that education costs and school loan interest is also deductible. Be sure to include the costs of looking for a job. If you have questions about whether an expense is deductible, you can check at the IRS website, or call the VITA center.
Some energy efficient home improvements may qualify for the Residential Energy Credit. This includes new heat pumps and water heaters that are certified energy efficient, insulated windows, and certain new roofs. This credit is limited to 30 percent of the eligible cost up to $1,500 credit. Certain limits apply so talk with your tax preparer.
Even if you are not expecting a refund, it helps to have your return completed early so you know the amount of any liability. You would still have until April 15 to pay it without a penalty or interest. As always, if you have questions, talk with your tax preparer.
Dr. Denise Smith is Assistant Professor of Business Administration and Health Care Management at Gardner-Webb University. She is a Certified Public Accountant with over 25 years of tax preparation experience and currently teaches tax, finance, healthcare administration, and related courses.