Standard Deduction or Itemized? Making the Right Choice for YOU This Tax Season

As tax time rolls round, there are several questions I hear more regularly.  One common query is whether a client should itemize deductions or take the standard deduction.  Before answering that, I thought it would be helpful to take a look at the difference between exemptions, credits, and deductions.

  • Exemptions – reduce your taxable income as a result of the people in your family including yourself, spouse, children, and any other dependents.
  • Deductions – also reduce your taxable income and are for things you did like making charitable contributions, student loan interest, tax preparation fees, and retirement contributions.
  • Credits – reduce your tax bill for things such as continuing education, earning a low income with the Earned Income Tax credit, child tax credit, improving your home with energy saving measures, or buying an electric car.

Exemptions and deductions are similar in that they take the amount of income earned and reduce it, creating a lower overall taxable income.  Credits don’t change your taxable income, but they are helpful in reducing the amount owed or increasing the amount of your refund.

The standard deduction is most common for several reasons, but mainly because it is the easiest option.  A standard amount is offered, depending on your filing status, and this amount reduces your total taxable income by the following amounts in 2017:

  • Single or married filing separately — $6350
  • Married filing jointly or qualifying widow(er) — $12700
  • Head of household — $9350

 

Taking the standard deduction saves time throughout the year as it means not needing to save expense paperwork.  Standard deductions are also perfect for the taxpayer who does not accrue deductible expenses during the year. Most taxpayers will ultimately take the simpler standard deduction when filing, but itemizing your deductions can result in bigger tax savings.  Ask your tax preparer to take a look at the deductible expenses you paid in 2017.  Such expenses include unreimbursed medical expenses, home mortgage interest, and gifts to charities.  Comparing this number with your standard deduction can help to make the most informed decision.

If you have questions regarding taxes, my door is open!


Married….the Pros & Cons of Filing Separately

Being married doesn’t mean you have to file a joint tax return with your spouse.  Choosing to file as “Married Filing Separately” means that you each claim your own income, deductions or exemptions, and credits on your own tax return.

In general, filing a joint return as a married couple yields a larger return, or smaller tax payment. This occurs for several reasons.  Larger standard deductions and credits are available to those filing a joint return.  Couples filing together can claim two exemptions and multiple credits.  Most of these credits are those realized by couples with children, college students, and the elderly.  Examples include:

  • child and dependent care tax credit
  • tax-free exclusion of Social Security benefits
  • credit for the elderly and disabled
  • deduction for college tuition expenses
  • student loan interest deduction
  • The American Opportunity Credit and Lifetime Learning Credit for higher education expenses

So why would a married couple or spouse chose to file separately?  One of the biggest reasons is that you are not responsible for any tax liabilities and penalties that your spouse incurs.  If you have any reason to believe that your spouse will have a large tax bill, filing separately waives your responsibility to this debt.  Along these same lines, some spouses like to keep their finances separate and therefore may chose to file separately to maintain that goal.  

The other major advantage of filing separately will relate to anyone with large deductions or expenses that couldn’t be realized if a joint return is filed.  Medical expenses are a primary example of these large deductions along with unreimbursed business expenses or large charitable contributions.

The decision to file a joint return or separate returns will be unique to each couple.  If you are looking for the largest possible return and hoping to receive several credits, then a joint return will tend to be your best option.  If you have large expenses to deduct or are nervous about your spouses’ tax bill, then it might be better to file separately.  The best person to help you navigate this choice is a tax preparer who can compare your options and help you make an informed decision.


Sugar Whipped!

The holiday season is right around the corner, and no – we aren’t talking about tax season for once!  Now is the perfect time to order pies, cupcakes, whoopie pies, cake pops, and other delicacies for all those office parties and family gatherings!  

But how do you chose when there are so many bakeries in Lancaster County?  Sugar Whipped is based in Lititz, PA and is known for using local, all natural  ingredients with no artificial flavors.  They are popular for their vegan and gluten free offerings and their whoopie pies have received some of the best reviews in Lancaster!  Sugar Whipped offers exotic and fun cupcake flavors like Maple Bacon Stout and Irish Car Bomb.  To check out the full line of monthly cupcake flavors, check out the Sugar Whipped website.  Or, if you have your own ideas in mind, they are happy customize for you.

Don’t procrastinate – order today!  Specialty and vegan or gluten free orders require a 7 day window and for regular cupcakes 2 days is requested.  It’s easy to get in touch with Sugar Whipped.  They are available by:

Phone  717.568.2202

Website  http://www.sugarwhippedbakery.com/

Email  stephanie@sugarwhippedbakery.com

Facebook  https://www.facebook.com/sugarwhippedbakery/


How Filing Early Can Benefit YOU!

In Protecting Your Tax Return we looked at filing a return early this year to protect against identity theft.  This remains a very important reason to file early, but are there other benefits to be gained as well?

  • Filing early means getting your tax return early – and who couldn’t use some quick cash?


  • It also allows some breathing room in case you find additional forms, receipts, or paperwork that are missing.  Have you ever taken your tax paperwork in, only to discover you were missing an investment form that you needed to track down?  Or a home mortgage document that you can’t remember where you placed?  Filing early prevents the mad scramble for loose ends at closing time.

 

  • And filing early means preventing fines and fees charged by inadvertently filing past the deadline.  However, if you know you’re facing a delayed filing, request an extension in advance and you can likely avoid these fees.

 

  • If you do owe money, filing early allows more time to save the money needed than at the last minute.

 

  • In general, it is much easier to get an appointment with your tax preparation firm early in the year.  Appointments and time available can fill up quickly in March!

 

  • For those with deadlines for student financial aid filing, having your taxes completed early will help!  This holds true for anyone who needs tax information for purchasing a new home. 

The Shared Economy & Taxes…5 Things You Need to Know!

A quickly growing area of our business economy is the online “on demand!” sector.  On demand entrepreneurs can offer anything from a car ride to a home for rent with the click of a button on a phone app in this shared economy.  As tax time approaches, there are several important things for these up and coming tycoons to keep in mind when they file:

vacation home

  1. If you earn any income via shared economy, whether it be cash only, part time, or full time, it will most likely be taxable.
  2. The plus side is that most of your business expenses can be tax deductible!  Some of these expenses include cell phones, tolls, and gas used towards your venture.
  3. Depreciation, or “wear and tear”, on your home and vehicles can be claimed for times when they are utilized for business needs.
  4. Take the time to determine whether you are considered an employee, self employed, or an independent contractor.  It will make a difference in your taxes!
  5. Home rentals must be claimed on your income tax return.  Fortunately that also allows for the possibility for more deductions in the forms of mortgage interest, maintenance, and utilities.

These tips are just a few of many provided by the IRS to those providing on demand goods or services.  More helpful links and ideas can be found at Sharing Economy Tax Center and the Shared Economy CPA.


File For A Cause Supports Excentia

November marks the season of giving thanks for all our blessings, health, family, and friends.  For many this season means looking for ways to give back to our community as we show our gratitude.

Filing your 2017 taxes online through File For A Cause is one easy way to contribute to a local organization.  When you file your tax return under FFAC, a portion of the filing fee will be donated to Excentia.  Where does your donation go?  These monies help individuals find jobs, get job training, learn socialization skills, build social capital, and to live independently or with supports – however they feel most comfortable.  Excentia provides developmental services from birth through adulthood…..helping people to life enriched and empowered lives.  Their Employment First Program has placed participants in every kind of job from barista to law office reception assistant to arborist.

Did You Know Excentia…….?

  • serves about 1,000 adults and children each year  
  • has 29 residential homes located in Lancaster County
  • volunteers at over 35 different non-profit organizations throughout the county
  • handles over 40% of the Lancaster City Meals on Wheels routes