Having gone through so many life changes — pursuing education, buying a house, getting married and having children – there is more to learn and more to become confused about every year.
For my benefit and I hope yours as well, I’ve spoken to Timothy Sensabaugh, owner of the Liberty Tax branches in Roseburg, Sutherlin and Coburg and to Joanna Meng, senior tax associate at Frank, Rimerman and Co. in New York, to get their advice on some commonly misunderstood aspects of filing taxes.
Even if you decide to do your own taxes, there are still good reasons to consult a professional. Sensabaugh said that many of his clients file themselves, but opt to bring everything to a company every few years.
“I would recommend having someone with a tax background review them for you before you file to see if you missed anything or reported anything incorrectly,” said Meng. “ … If you did make an error, you can catch it in the following years yourself instead of the IRS or state taxing authorities coming to ask you about it later.”
Here are some other filing basics:
Married couples may file jointly or separately, though both Sensabaugh and Meng say it’s rarely beneficial to file separately. If you wonder which bracket would be better for you, ask a professional.
If you’ve purchased a home, possible tax deductions include loan origination fee, loan discount fee, points paid by the buyer or seller, mortgage interest paid and real estate taxes (not escrow) paid. (A point is equal to 1 percent of your total loan amount.)
After a refinance, points paid on refinancing generally are not fully deductible when paid. To determine the deduction for a year, divide the number of points paid by total number of loan payments. Multiply this amount by the number of months the loan was paid in that year.
With remodeling or buying new appliances, Meng said to check what credits are being offered for energy-efficient items. The credit for your federal taxes is up to $1,500, and some states will offer an additional credit.
Moving expenses may also be a deduction if the move is work-related and the distance and time tests are met.
A child tax credit is a nonrefundable credit for a qualifying child younger than 17. The credit is up to $1,000 and can reduce the tax to zero. The credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $3,000.
A credit for up to 35 percent of the qualified child and dependent care expenses paid is available for parents employed or actively looking for work. Make sure a formal agreement including agreed payment between child care and parents is made and that both parties have identical receipts.
Taxpayers repaying a student loan may qualify to deduct up to $2,500 of their loan interest as adjustment to income. There are also two credits available: Lifetime Learning Credit and the American Opportunity Credit. The latter includes tuition and other expenses such as books or class-required supplies.
It’s not too soon to call a tax service with questions. As you can imagine, their offices will only get busier between now and April 15.