Tax filing time is an ideal time to review your financial affairs. You have to gather information to prepare your tax return at this time. Why not take one more step and do something positive for your financial well-being?
The following suggestions will get you started on your financial review:
Hold a discussion with your family. Spouses and children need to share and prioritize their financial aspirations.
- Write down your financial goals. How much money will you need to meet each goal? When will you need the money, and how will you get it?
- Construct a net worth statement (a list of your assets and debts), and compare it to last year’s statement. Are you gaining or losing ground?
- With your goals (and the effects of inflation) in mind, review the performance of your investments.
Take steps to protect what you already have. Goals may become instantly unobtainable if you lose your present assets or your income potential.
- Do you have adequate disability insurance coverage to replace take-home pay if you become incapacitated?
- Do you have enough life insurance if you or your spouse should die?
- Do you have replacement value property insurance on your home?
- Do you have adequate insurance for calamities such as automobile accidents or lawsuits? Note: Make sure that you need all of the insurance that you have. Do not duplicate employer-provided coverage. Review your coverage annually; do not just automatically renew policies.
Review your will and your estate plan. Did your situation change during the year (marriage, divorce, births, deaths, move to another state, for example)? If so, make appropriate changes to your will and estate plan.
Review your credit use. Keep your credit card bills current. If you’re finding that hard to do, it’s probably time to cut up some of those credit cards and get your debt under control.
Organize your records. If you had trouble assembling data for your financial review, you need a better system. Set one up.
Tax credits are one of the most powerful ways to lower your income taxes. A tax credit reduces your tax bill dollar for dollar. A tax deduction, on the other hand, only reduces your taxable income, so your benefit is determined by your tax bracket.
For example, a tax deduction of $1,000 will lower your tax bill by $320 if you are in the 32% tax bracket. A $1,000 tax credit will lower your tax bill by $1,000.
Here are some of the most common tax credits; most are subject to income limits.
- Child credit. Taxpayers who have dependent children under age 17 may be eligible for a child tax credit of $2,000 per child.
- Dependent care credit. Expenses paid for the care of dependent children under 13 and certain other dependents may qualify for a tax credit.
- Education credits. Qualified college and vocational school expenses for eligible students may qualify for a credit. Under the American Opportunity Tax Credit, up to $2,500 per student can be claimed for tuition and fees paid during four years of post-secondary education. Under the Lifetime Learning Credit, up to $2,000 per family is available for post-secondary education expenses and for education expenses to acquire or improve job skills.
- Earned income credit. This credit is intended for low-income taxpayers. The size of the credit depends on the amount of your earned income (wages and self-employment income), investment income, and your filing status. Qualifying children can increase the credit.
- Business credits. There are a number of credits available to businesses. They include the research credit the work opportunity credit, the disabled access credit, and the low-income housing credit.
Don’t overlook valuable credits that could reduce your taxes. For details on the credits for which you might qualify, call Loeffler Financial Group today at 717.393.7366 for a review of your situation.
The adoption process can be expensive. Fortunately, the adoption tax credit can help offset some those expenses Taxpayers who adopted or started the adoption process in 2020 should review the rules for this credit.
Here are some facts to help people understand the credit and if they can claim it when filing their taxes:
- The maximum adoption credit taxpayers can claim on their 2020 tax return is $14,300 per eligible child.
- There are income limits that could affect the amount of the credit
- Taxpayers should complete Form 8839, Qualified Adoption Expenses. They use this form to figure how much credit they can claim on their tax return.
- An eligible child must be younger than 18. If the adopted person is older, they must be physically or mentally unable to take care of themselves.
- This credit is non-refundable. This means the amount of the credit is limited to the taxpayer’s taxes due for 2020. Any credit leftover from their owed 2020 taxes can be carried forward for up to five years.
- Qualified expenses include:
- Reasonable and necessary adoption fees.
- Court costs and legal fees.
- Adoption related travel expenses like meals and lodging.
- Other expenses directly related to the legal adoption of an eligible child.
- If the taxpayer and someone other than a spouse each paid qualified adoption expenses to adopt the same child, the $14,300 credit must be divided between the two of them.
- Expenses may also qualify even if the taxpayer pays them before an eligible child is identified. For example, some future adoptive parents pay for a home study at the beginning of the adoption process. These parents can claim the fees as qualified adoption expenses.
- Qualified adoption expenses don’t include costs paid by a taxpayer to adopt their spouse’s child.
Have additional questions? We’re here to help! Contact Loeffler Financial Group today at 717-393-7366, or email info@loefflerfinancial.com with any questions you may have. Our tax experts and accountants can help break down the steps in order to one, understand the tax credit, and two see if the tax credit will benefit you for your 2020 tax return.
The Internal Revenue Service, the U.S. Department of the Treasury and the Bureau of the Fiscal Service announced they are disbursing approximately 37 million payments in the second batch of Economic Impact Payments from the American Rescue Plan. This brings the total disbursed payments from the American Rescue Plan to approximately 127 million payments worth approximately $325 billion.
As announced on March 12, Economic Impact Payments will continue to roll out in batches to millions of Americans in the coming weeks.
The second batch of payments includes direct deposits, as well as paper checks and debit cards being sent through the mail. Here is additional information on the second batch of payments:
- Like the first batch of payments, the payments announced today primarily were sent to eligible taxpayers who filed 2019 or 2020 returns. People who don’t typically file a return but who successfully used the Non-Filers tool on IRS.gov last year were sent payments in this batch.
- In total, this second batch includes approximately 37 million payments, with a total value of nearly $83 billion.
- As part of that, this batch of payments includes approximately 17 million direct deposit payments, with a total value of more than $38 billion. These payments began processing on Friday, March 19, and some Americans saw the direct deposit payments as pending or as provisional payments in their accounts before today’s official payment date.
- In addition, this batch of payments includes nearly 15 million paper checks (with a total value of nearly $34 billion) and approximately 5 million prepaid debit cards (with a total value of around $11 billion).
- Paper checks and debit cards – known as EIP cards –began processing on Friday, March 19, and will continue to be sent by mail over the next few weeks.
As announced last week, the first batch of payments was mostly sent by direct deposit. Here is additional information on the first batch of payments:
- The first batch of payments began processing on Friday, March 12, and some Americans saw the direct deposit payments as pending or as provisional payments in their accounts before the official payment date of March 17.
- The first batch of payments primarily was sent to eligible taxpayers who provided direct deposit information on their 2019 or 2020 returns, including people who don’t typically file a return but who successfully used the Non-Filers tool on IRS.gov last year.
- In total, the first batch included approximately 90 million payments, with a total value of more than $242 billion.
- The use of direct deposit to issue these payments means that they were disbursed remarkably faster than would otherwise be possible.
- While most payments were disbursed by direct deposit, Treasury mailed roughly 150,000 checks worth approximately $442 million.
Additional batches of payments will be sent in the coming weeks as direct deposits and through the mail as paper checks or debit cards. The vast majority of all Economic Impact Payments will be issued by direct deposit. No action is needed by most taxpayers.
Many federal beneficiaries who filed 2019 or 2020 returns or used the Non-Filers tool were included in these first two batches of payments, if eligible. For federal beneficiaries who did not file a 2019 or 2020 tax return or did not use the Non-Filers tool, the IRS is working directly with the Social Security Administration, the Railroad Retirement Board, and the Veterans Administration to obtain updated 2021 information to ensure that as many people as possible are sent fast, automatic payments. More information about when these payments will be made will be provided on IRS. gov as soon as it becomes available.
Individuals can check the “Get My Payment” tool on IRS.gov to see the payment status of these payments.
Learn more about the third round of the Stimulus payment and see who is eligible for the Economic Impact Payment check out our blog post here.
Need to still schedule a tax appointment? Book online, or call Loeffler Financial Group today at 717-393-7366.
The IRS started issuing the third round of Economic Impact Payments. No action is needed by most taxpayers. The IRS will issue payments automatically to you by direct deposit and through the mail as a check or debit card.
Many people will receive the third payment the same way they received the first and second Economic Impact Payments. Because these payments are automatic for most eligible people, there’s no need to contact Loeffler Financial Group, or the IRS. Individuals can check the Get My Payment tool on IRS.gov for status of their third stimulus payment.
Highlights of the third Economic Impact Payments
In general, most people will get $1,400 for themselves and $1,400 for each qualifying dependent claimed on their tax return. As with the first two Economic Impact Payments, most people will receive their third payment without having to take any action.
The third Economic Impact Payment is based on the taxpayer’s latest processed tax return from either 2020 or 2019. This includes anyone who successfully registered at IRS.gov using the agency’s Non-Filers tool last year or submitted a simplified tax return. If the IRS received and processed a taxpayer’s 2020 return before issuing someone’s third Economic Impact Payment, the amount is based on the 2020 return.
Those who received the first or second payment but don’t receive a payment by direct deposit will generally receive a check or a prepaid debit card, referred to as an EIP Card. The IRS will not add the third payment to an existing EIP card that people received for the first or second round of stimulus payments.
Please note: Under the new law, the IRS can’t apply the third Economic Impact Payment to past-due federal debts or back taxes.
Who is eligible for the third Economic Impact Payment
Generally, U.S. citizens or U.S. resident aliens are eligible for the full amount of the third Economic Impact Payment if they and their spouse, if they’re filing jointly, are not a dependent of another taxpayer and have a valid Social Security number and their adjusted gross income on their tax return does not exceed:
- $150,000, if married and filing a joint return or if filing as a qualifying widow or widower.
- $112,500, if filing as head of household.
- $75,000 for eligible individuals using any other filing statuses, such as single filers and married people filing separate returns.
The payments phase out — or reduce — above those AGI amounts. This means taxpayers will not receive a third payment if their AGI exceeds:
- $160,000, if married and filing a joint return or if filing as a qualifying widow or widower.
- $120,000, if filing as head of household.
- $80,000 for eligible individuals using other filing statuses, such as single filers and married people filing separate returns.
Looking for more information on tax tips and strategies? Check out our 10 Tax Tips for Individuals, and Tax Strategies for Homeowners!
To schedule an appointment, call us today at 717-393-7366 or book online (virtual appointments and in-person appointments daily). Loeffler Financial Group is here for you!
Frequent tax law changes have made the tax code very complicated; only the informed taxpayer can take advantage of tax-cutting opportunities that remain.
Here are some suggestions you should consider if you’re interested in cutting your taxes.
1. Reduce your consumer debt. The interest you pay on consumer debt is not deductible. Consider shifting consumer debt to a home-equity loan (where available and not to exceed $100,000) to maintain deductibility for the interest. Don’t rush into anything, however. Consider loan origination costs and points you may have to pay. Also, realize that if you can’t make the payments on the home-equity loan, you could lose your house.
2. Rehabilitate an old building. One tax break that may be attractive to you is the credit for rehabilitating old buildings – either commercial or certified historic structures. If you don’t want to do the work yourself, consider investing in partnerships that rehabilitate old structures.
3. Watch for AMT liability. The alternative minimum tax (AMT) is the one you pay when too many tax preference items reduce your regular tax below a certain amount. If you use preference items to reduce your taxes – such as accelerated depreciation, private activity bond interest, etc. – you may want to shift income and deductions to keep the alternative minimum tax from applying to you.
4. Time any change in marital status with a view to minimizing taxes. Among the areas that could be affected are deductibility of IRA contributions, lost itemized deductions, and a shift to a different tax bracket. You might be able to cut your tax bill by delaying or accelerating a marriage or divorce.
5. Contribute to a retirement plan. Retirement plans are still an excellent tax shelter. Consider a a retirement account strategy to reduce your self-employed income, even part-time or in a second business. If you’re an employee, find out if your company has a 401(k) or other plan and make contributions to it. If you qualify, you should also consider an IRA.
6. Use your vacation home wisely. If you own a second or vacation home, find out whether you get a better tax break by treating the property as a second residence or as a rental property. The number of days you personally use the home is crucial, so get details immediately.
7. Avoid the “kiddie” tax. Check the income of any children under the age of 19 (24 for full-time students). Unearned income beyond a certain amount will be taxed at your highest rate. Shifting investments or making other adjustments may be appropriate.
8. Make your hobby a business. If you’re making money from a hobby, turn your hobby into a business so that you can write off your expenses. You must be able to demonstrate that you engaged in the activity for a profit. To do that, conduct the activity as a business. Keep records, and get a separate bank account for the activity. The IRS will expect your sideline business to show a profit in three out of five years, or you’ll have to prove your profit motivation in order to deduct losses.
9. Don’t overlook medical deductions. If you help to support an elderly relative who lives in a nursing home for medical reasons, the cost of the nursing home may qualify for the medical deduction. If you make improvements to your home for medical reasons, the cost of such improvements are medical expenses to the extent the improvements do not increase the value of your home. That includes such things as widening doorways for wheelchair use or modifying the home to accommodate an individual with a medical problem.
10. Take the child care credit if you qualify. If you pay for child care services while you work or go to school, you may qualify for the child care credit. The credit is allowed only for children under the age of 13. You must report on your tax return the name, address, and taxpayer identification number of the care provider.
There are other tax-cutting strategies in addition to those mentioned here. If you would like assistance in selecting tax-saving strategies that make the most sense in your situation, please call Loeffler Financial Group at 717-393-7366 and we can assist with any questions or concerns you may have!