Making sure that the correct amount of tax is being withheld from your paychecks is the best way to avoid an unpleasant IRS surprise next spring. Here’s a simple way to do a September withholding checkup:
– On your pay stub for the pay period ending August 31 or September 1, find your year-to-date federal income tax withholding. If the stub does not have this information, you can request it from your employer’s payroll manager.
– Calculate two-thirds (66.67%) of the total federal income tax you paid for tax year 2018. Increase this percentage if you received a raise for (or during) 2019. For example, use 70% if you received a small raise, or 75-80% if you received a substantial raise.
The amount you found in step 1 should be greater than or equal to the amount you found in step 2. If it is not, you can obtain a new W-4 Form from your employer and request that an additional amount be withheld from your paychecks. The IRS also has a withholding calculator that can be found at: https://www.irs.gov/individuals/tax-withholding-estimator.
An experienced tax pro can help you determine what this amount should be. By adjusting your withholding now, you can spread out your tax payments over several months, instead of being stuck with one large, unexpected bill in April.
The IRS may assign certain cases of overdue debts to private debt collectors, but only after giving written notice. Any payment to the private debt collectors should only be made payable to the U.S Treasury.
There are currently only four contractors authorized for collection: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of Livermore, Calif.; and Pioneer of Horseheads, N.Y.
The Tax Cuts and Jobs Act (TCJA) created a new deduction for many taxpayers with business income. The Qualified Business Income (QBI) deduction applies to income derived from “pass-through entities”—businesses whose earnings are reported on individual owners’ tax returns rather than corporate returns. If you are a sole proprietor, partner, LLC owner, or shareholder in an S corporation, you may be eligible to claim the deduction.
If you qualify, you may be able to deduct a portion of your business earnings from your adjusted gross income (AGI) on your tax forms. Because the QBI deduction reduces your taxable income, it may result in significant tax savings.
If you have student loans, you may be able to deduct up to $2,500 per year in loan interest on your federal tax forms. Because this deduction is classified as an adjustment to your gross income, you do NOT have to itemize deductions in order to claim it.
For any loan on which you paid $600 or more in interest during the year, you should receive a Form 1098-E from the loan issuer to help you prepare your federal return.
The student loan interest deduction is phased out for individual taxpayers with a modified adjusted gross income above $65,000 (or $135,000 for joint filers). Additional IRS rules may affect whether your loans qualify for the deduction.
If you purchased alternative energy equipment for your home in 2018, you may be eligible for a tax credit of up to 30% of the cost of materials and installation. Qualifying equipment may include solar water heaters, solar panels, and fuel cell systems. If you end up owing no tax for 2018, you may be able to carry any surplus energy tax credit over to future years.
Under current laws, credits for home renewable energy equipment may be reduced after 2019 and will expire completely in 2021.
If you’re starting a summer job or know a teen or student who is, here is a useful tax-saving tip:
Students and teenage employees normally have taxes withheld from their paychecks by their employer after filling out a Form W-4.
However, if the job is regarded as self-employment, like baby-sitting or lawn care can be, they should keep good records of all expenses to help maximize potential deductions.
In the case of lawn care, potential deductible expenses may include: business cards, fliers, fuel, equipment rentals, chemicals, work mileage, etc.
If you put money in a 529 account for education, withdrawal of earnings are tax-free if used for qualified educational expenses. Qualified educational expenses include tuition, fees, housing, meals and books. Many states offer a full or partial tax deduction for 529 plan contributions. They may also offer incentives and promotions to encourage families to open and contribute to 529 accounts today for National 529 College Savings Day.
The 2017 Tax Cuts and Jobs Act (TCJA) also expanded eligibility for 529 savings plans. Up to $10,000 per year can now be used for Kindergarten through Grade 12 education (public, private, or religious schools). This was previously limited to post-secondary education only.
If you choose to itemize, donating furniture, vehicles, or other property to IRS-approved charitable organizations allows you to improve the lives of others while reducing clutter in your own, all while gaining a valuable tax deduction. In many cases, the allowed deduction is equal to the fair market value of the property you donate. However, for property that appreciates in value, such as artwork or musical instruments, special rules govern the allowable deduction amount.
The size of your deduction may also be affected by your adjusted gross income (AGI) and whether you made monetary charitable donations during the same tax year. Deductions of $250 or more require a written acknowledgement from the receiving organization, and those of over $500 require additional documentation. Any deduction for a donation of property valued at over $5,000 requires a certified appraisal.
The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the deduction for interest on most home equity loans. However, you may still be able to deduct some or all of the interest you paid on a home equity loan if you used loan funds to build, expand, or substantially improve your home.
Examples of potentially qualifying projects include building a carriage house or three-season porch, expanding your garage, or replacing your roof.
The 2017 Tax Cuts and Jobs Act has expanded eligibility for Section 529 savings plans. Up to $10,000 per year can now be used for Kindergarten through Grade 12 education (public, private, or religious schools).
This was previously limited to post-secondary education only.