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.
Amending a tax return in your favor can give you money back that you had not been entitled to before these changes. Amendments such as claiming overlooked deductions, IRS rule changes, miscalculations and a corrected 1099 or W2 can all work in your favor, giving you a larger return. You will want to make changes to past tax returns if there are errors that may be flagged by the IRS, including unreported income.
While the number of individuals audited is small in comparison to returns, it does not necessarily imply a suspicion of criminal activity. Tax returns that have any unusual deduction, conflicting calculations or are missing paperwork may be flagged for an audit. After you receive a letter from the IRS indicating that you are being audited you will have thirty days to respond. In the letter, the IRS will indicate the paperwork that is needed and these 30 days should be used gathering this information and supplying it to the IRS.
If the property and other inheritance is below a certain dollar threshold, this will not be taxed. The estate tax can be up to 40% of the value of the inheritance, depending on how much the inheritance totals. In the United States this threshold is just over $11.5 million. One way to avoid having your loved ones pay exorbitant taxes on their inheritance is by giving away your assets prior to your death. $15,000 can be gifted each year to an individual without paying tax.
A traditional IRA and a 401(k) are tax-deferred retirement accounts. The money is left in these types of accounts to grow and collect dividends. However, when you start taking withdrawals you will pay taxes. Roth IRAs differ in that contributions are not tax-deductible, but when you begin taking withdrawals this will be tax-free. A portion of your social security benefits may be taxed if your provisional income exceeds $25,000.