A rental property can offer a steady income for the landlord. In addition to the monthly rent, these types of properties come with many tax deductions that can save you money. Mortgage interest, property taxes and any repairs are all tax deductible. There are plenty of less obvious deductions including milage associated with the rental, insurance, utilities and loss of income when the rental is vacant.
Filing before you have all your tax documentation is a common mistake. Without this necessary paperwork finalized, some of the numbers in your tax return may not be accurate. The 2021 Child Tax Credit statements were mailed at the beginning of the year to families that received this money. If the money on this statement and that reported on your tax return are not in sync, this will require a manual review by the IRS. Math errors in your tax return can be a red flag for an audit. It is important to make sure that your calculations and figures are correct prior to filing.
Living and working in different states can pose an interesting challenge when filing taxes. In most cases you will need to file multiple tax returns, a resident tax return for that state that you live in and a non-resident return for the state where you work. Filing two separate tax returns does not mean that you will have to pay two separate tax bills. On your resident state tax return you will report your tax liability from your non-resident tax return. All states allow filers to claim a tax credit based on taxes paid to other states.
The IRS has stated that COVID-19 home testing kits can be considered a medical expense under the tax code. Personal protective equipment (PPE) that is used primarily for preventing the spread of COVID-19 also falls under this tax code. This includes masks, hand sanitizer and sanitizing wipes. However, to be eligible for deducting these items on your taxes the total for all medical and dental expenses must exceed 7.5% of your adjusted gross income.
When investing in real estate properties, you can deduct the money paid in property taxes, property insurance and mortgage interest on your taxes. Money that goes to improve or repair a rental property can be deducted from your taxes as well. This will greatly reduce the taxable income that you make from your rental property, making this a more lucrative investment.
Currently taxpayers can claim a tax credit of $2,000 per child under age seventeen. The American Rescue Plan raises that amount to $3,600 for children under age six and $3,000 for those between six and seventeen. This change means additional tax credit per child, and it allows those that are seventeen to now qualify as well. While the majority of families with minor children will qualify for this additional tax credit, there are income limits that will restrict others.
To file a tax amendment, you will need to submit new forms for the sections of your taxes that are being amended. The IRS’ web site allows you to download these forms from previous tax years. You will need to submit the 1040X form, also available on the IRS web site. Using this form, you can write in the reason for filing the amendment.
A Brookline resident needed to make an amendment to a previous year’s tax return. Wanting to make sure this was done properly, he contacted Merrimack Tax Associates.
Unmarried individuals have the option of either single or head of household as their tax status. When filing as head of household, you have a much higher standard deduction than single filers, as well as a better overall tax rate. To qualify as head of household you must be unmarried, pay greater than half the costs of supporting a household and have at least one dependent that lives with you.
Itemized deductions are a range of expenses that are deductible on your taxes. These include mortgage interest, property taxes, medical and dental expenses that exceed 7.5% of your adjusted gross income, charitable donations and more. Itemized deductions reduce your taxable income significantly, resulting in less taxes paid and, in some cases, even a lower tax bracket.
When money is paid from a life insurance policy upon death, the money is not considered taxable income and the beneficiary does not have to pay taxes. If the money is not immediately paid out but is held by the insurance company for some reason, interest that is generated during that time may be subject to taxes. If the insurance is paid to the estate, as opposed to a beneficiary, you may have to pay an estate tax on the money.