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Income Tax Tips

These are helpful tips that will remind you of the most common deductions and overlooked information.

We at Ace Tax and Realty would like to remind you that there is a new option to have your refund direct deposited in up to three different banks or financial institutions. Taxpayers can use the direct deposit line on the 1040 Form to specify a deposit to one institution. For more than one financial institution, taxpayers should use the new 8888 Form: Direct Deposit of Refund to More Than One Account.

Changes for Charitable Contributions

We at Ace Tax and Realty would like to remind you that the IRS has imposed stricter standards for the quality of some items donated to charities. Ace Tax and Realty reminds you that deductions are NOT allowed for most clothing and household items, unless the donated property is in good condition or better. The rule does not apply to any contribution of a single item for which a deduction of more than $500 is claimed if the taxpayer includes a qualified appraisal with the return. Monetary charitable contributions will be disallowed for any monetary contributions unless the donor supplies written records. Please keep receipts and or checks.

Sales Tax Deduction

Taxpayers can take advantage of state sales tax deductions through 2018 if they itemize deductions. Those who live in one of seven states without a state income tax may deduct their state sales tax when they itemize. Taxpayers in states with state income taxes can choose to deduct their state income taxes or state sales taxes, whichever is more advantageous. Remember, total real estate taxes and personal taxes are limited to $10,000.00

Vehicle Donation to Charity

The donation of your used car to a nonprofit organization may not be deductible based on the total “blue book value” of the car. The IRS has placed limitations on the amount that may now be deducted for a vehicle donation. The amount that can be claimed will be based on how the charity or nonprofit organization actually uses the vehicle.

  • If the organization uses the vehicle, but does not sell it, the taxpayer must have documentation of the vehicle’s value, or fair market value. 
  • If the organization sells the donated vehicle without using it in any significant way, the charitable deduction cannot exceed the gross proceeds of the sale. 

The receiving organization should issue Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes exceeding $500.00. One copy of this form should be kept with the taxpayer’s records and the other should be attached to the tax return.

Child Tax Credit

The child tax credit is up to $2,000 for a qualifying child under age 17. A qualifying child is:

  • a son/daughter
  • stepchild
  • eligible foster child who is a dependent
  • sibling
  • stepbrother/stepsister
  • descendent of any of the above mentioned (including grandchild, niece and nephew).

This credit is nonrefundable, and can only reduce the taxpayer's income tax. This amount is subject to change based on your taxable income. 

Additional Child Tax Credit

A refundable additional child tax credit may be available to those who qualify and have not used up the available amount against their calculated taxes. The military taxpayer can add nontaxable combat pay to the earned income which may allow a larger credit. The percentage used to determine the credit is 15% of the earned income amount over $11,300.

Child and Dependent Care Credit

A credit for up to 35% of qualified child and dependent care expenses paid is available for taxpayers who pay childcare in order to go to work. Qualified expenses may be allowed for up to $3,000 for one eligible individual ($6,000 for two or more).

The following individuals may use this credit:

  • Persons employed or looking for work who must pay someone to care for dependents under age 13
  • A qualified disabled person may be able to take this credit. 

Net Capital Gains and Losses 

The maximum tax rates for net capital gains are generally 15% or 5%. 

Short term capital gains: capital assets such as stocks or bonds held for one year or less and are taxed at ordinary income rates.

Long-term capital gains: capital assets held for longer than one year before they are sold. The holding period begins the day after acquiring these assets and ends on the day of sale.

Capital gains and losses are declared on Schedule D, Capital Gains and Losses. Gains on collectibles, depreciated property, and certain small business have different rates.

Deductible Mileage Rates 

The standard business mileage rate is 58 cents per business mile driven in 2018. The deductible amount for mileage driven during a move and/or for medical purposes is 18 cents per mile in 2018. Charitable mileage is deductible at 14 cents per mile in 2018. Be sure that you document this mileage by keeping a log or other written record.

The standard mileage rate for charitable use of vehicles providing relief to hurricanes and natural disasters is 32 cents per mile.

Section 179 Deduction 

Section 179 deduction: an expense treatment for tangible personal property such as machinery and equipment instead of depreciating them over the useful life of the items.

The new limit for the section 179 deduction is $108,000 for qualified business properties placed in service in 2012. Section 179 can only be deducted in the year of purchase.

Earned Income Credit (EIC) and Military Combat Pay

If you serve in a combat zone, you may elect to include combat pay in the earned income amount used to figure your earned income credit for 2018. Maximum earned income credit:

  • For two or more qualifying children: $5,436
  • For one child: $2,747
  • For a taxpayer who does not have a qualifying child: $412 

Tax Break for Eligible Educators

Eligible educators who spend their own money on classroom supplies may qualify for a tax break. An eligible educator is:

  • a K-12 grade teacher/instructor
  • Counselor
  • Principal
  • Aide who works at least 900 hours in either a public or private school. 
The adjustment for these expenses, of no more than $250, can be claimed whether or not the taxpayer can itemize. This adjustment has been extended through the 2007 tax year. Credentials may be required to prove that you are an educator.

Adjusting Your Withholding Amount 

You can adjust the withholding amount and the allowances you are claiming by completing a new Form W-4, Employee’s Withholding Allowance Certificate, and giving it to your employer.

Recent tax changes or personal changes such as marriage or divorce, birth of a child, and changes in employment or income may mean that too little or too much tax is being withheld. If you need to have more money taken out of your paycheck, reduce the number of withholding allowances, or figure the additional amount of money that you would like withheld each pay period.

The most common mistake taxpayers make is to put 9 or 10 dependents or exemptions when they are expending a bonus or a large vacation check in order to maximize the take home amount and often times they forget to readjust it to the normal dependents or their actual exemptions. This will give them an unpleasant surprise at the end of the year when they file their taxes because they are not going to have enough money withheld to obtain a refund.

Personal Moving Expenses No Longer Deductible 

Student Loan Interest

Taxpayers repaying a student loan (or education loan) may qualify to deduct up to $2,500 of their student loan interest as an adjustment to income. There are AGI (adjusted gross income) limitations which determine deductibility.

Installment Payment Plan

If you can’t pay the total taxes owed to the IRS by the tax deadline, you may pay in installments. If you are not currently paying by an installment plan, complete Form 9465, Installment Agreement Request, and attach it to the front of the tax return. You should send as much of the payment as possible with the return in order to limit penalty and interest charges which will continue accumulating until the tax is paid off.

Taxpayers who have already mailed or electronically filed their returns can mail Form 9465 to their appropriate IRS Service Center. An IRS representative will contact you to discuss the situation and arrange the payments.

Tuition and Fees Deduction

Qualifying higher education expenses such as tuition and fees you paid for yourself, a spouse, or a dependent may be deductible.

  • Up to $4,000 of these expenses can be deductible as an adjustment to income if your AGI is below $65,000 ($130,000 if married filing jointly)
  • The deduction is limited to $2,000 if your AGI exceeds that limit but is under $80,000 ($160,000 if MFJ)
  • The taxpayer cannot claim both this deduction and the Hope or Lifetime Learning credit for the same student in the same year.

Retirement Savings Contribution Credit

If you contributed to an IRA or an employer-sponsored retirement plan in 2018, you may be eligible for a credit. This nonrefundable credit is based on the return income and can be up to $5,500 per taxpayer. It can be taken in addition to the deduction of the traditional IRA contribution.

Individual Retirement Arrangements (IRAs) 

For taxpayers covered by a pension plan at work, the modified adjusted gross income limit for deducting traditional IRA contributions has increased.

  • A couple filing married filing jointly whose income is between $75,000 and $85,000 can take a partial deduction this year.
  • Single taxpayers (including head of household filers) making between $50,000 and $60,000 can take a partial deduction.
  • The contribution limit for 2006 is $4,000 ($5,000 if age 50 or older).
  • Personal casualty and theft losses NO LONGER deductible
  • Business losses and casualties remain deductible as a business expense
  • Bad debts that become uncollectible are also deductible as a business expense 

Adoption Credit

The maximum adoption credit and exclusion amount is $13,260. The full $13,260 credit will be allowed for adopting a special needs child, regardless of whether the taxpayer has qualifying expenses. 

Medical Expenses 

Do not overlook medical deductions for which you qualify. 

  • Hearing aids
  • Eyeglasses/contact lenses
  • Hospital fees for nursing, physical therapy, lab tests and x-rays are all deductible.

The mileage to and from a doctor's or dentist's office is deductible at 18 cents a mile, as are parking fees and tolls. You may also deduct mileage driven to fill prescriptions. Taxpayers who itemize can deduct non-reimbursed medical expenses that they paid during the year if these exceed 7.5% of their adjusted gross income.

Hope and Lifetime Learning Credits

There are two non-refundable tax credits for payments made for qualified tuition and related expenses for post-secondary education. 

  • The Hope credit remains at 100% of the first $1,100 of expenses and 50% of the next $1,100 expenses, for a maximum credit of $1,650. 
  • The Lifetime Learning credit gives a credit of 20% of qualified educational expenses not exceeding $10,000, for a maximum credit of $2,000.

Qualifying Expenses for Educational Credits

Tuition you paid for yourself, your spouse, or a dependent to attend an eligible educational institution in 2011 qualifies for this credit. The costs of books, supplies, and equipment do not usually qualify but may qualify if these purchases are required by and paid to the school in order to attend. 

The amount of credit for the Hope and/or Lifetime learning credits will be reduced for single taxpayers whose modified adjusted gross income is between $45,000 to $55,000 (between $90,000 and $110,000 for married filing jointly).

Non-Business Energy Property Credit Residential

You can claim a credit for certain energy efficient improvements made to your principal residence in 2018. A limit of $1,500 applies, and only $500 can be used for exterior windows.

Residential Energy Efficient Property Credit

For eligible property placed in service during 2018, you can claim a credit of 30% of the cost of certain energy efficient property.

Alternate Motor Vehicle Credit

You may be able to use this credit if you place an alternate motor vehicle in service in 2018. The credit is available in the year the vehicle is placed in service. The credits vary by the model and phase out once the manufacturer has sold 60,000 qualified vehicles.