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Are You Missing Out on Your Earned Income Tax Credit?

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Earned Income Tax Credit

Are you missing out on a four-figure check each year without even knowing it? An earned income tax credit can provide a positive impact on a family’s finances and go back into the economy. However, to claim the credit you need to file taxes and have the knowledge of the credit itself.

What is an Earned Income Tax Credit?

The IRS website defines an earned income tax credit (EITC) as a benefit for working people with low-to-moderate income. In many cases, the EITC reduces the overall amount you owe the IRS or provides a refund. To qualify for an EITC, you need to meet certain requirements.

First, you need to files your taxes. You must also have some type of earned income from the tax year in which you are filing. Your income must be less than $45,802 if you are single and have two children. For married couples filing jointly with two children, household income must be less than $51,492.

How Much is an EITC?

The average amount American families typically receive nationwide is currently around $2,488. Across the country last year, 25 million workers and families received $63 billion in earned income tax credits.

However, your EITC will vary depending on your income, filing status, and the number of children being claimed on your return. A married couple filing jointly this year with three or more children could receive a credit of up to $6,431.

Why the Money is Going Unclaimed

According to The Detroit Free Press, nearly $80 million went unclaimed three years ago. This was because 26,000 households eligible for the credit in the Detriot area simply didn’t file their taxes.

This is one of the reasons many people’s EITC goes unclaimed. Another reason is (and this is what they found in Detriot) people just don’t know about the credit and who is eligible. After the City of Detroit launched a targeted awareness campaign, $63 million more is being claimed in EITC each year.

“It was a blessing to learn about this tax credit,” said Renee Perkins, a Detriot citizen. Many of the people receiving these are in need. They are single parents or low-income families. For people like Perkins, who expects to receive a tax refund of $6,000 this year, an EITC can be life-changing.

Understanding the EITC

People who don’t make a lot of money or don’t understand the federal income tax system may not think they need to file. Typically, the rule of thumb is any single person under the age of 65 with a gross income over $12,000 must file. For married couples filing jointly, the threshold is a bit higher ($24,000).

This is a bit higher than previous years, meaning more people may qualify for an EITC. Last year, the amounts were $10,400, and $20,800. Even if you don’t have to file taxes, filing can actually help you get more money.

Additionally, if you haven’t filed and believe you may be entitled to EITC from previous years, you can amend your returns for up to three years. If you believe you may have missed out on an earned income tax credit in the past, you may want to consider cashing in on them before you lose it.

It is crazy to think thousands of families are passing up cash that could positively impact their finances. If you aren’t quite sure whether or not you qualify or have any tax questions, all families and individuals with an income under $55,000 may be eligible for the Accounting Aid Society’s free full-service tax help. This agency will help you file your federal, state, and local returns and will help ensure you receive any tax credits and benefits.

Readers, how many of you look forward to this tax credit?

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Business Credit Card Deductions You Won’t Want to Miss

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Business credit card deductions

There are more than 364 million open credit card accounts in the United States. Most people use one daily. This is typically true of businesses as well. In fact, most business owners have a credit card they use for any and all purchases. However, not everyone is aware of the many business credit card deductions they may be missing out on.

5 Business Credit Card Deductions

As many of us are receiving our W2s and other tax paperwork in the mail, you may be searching for additional deductions you can make before you file. If you are a business owner or have a business credit card, be sure you make a note of these.

  1. Credit card interest charges. Ideally, you wouldn’t have any interest on purchases for your business. Every once in a while you may have to buy a large piece of equipment or something more expensive that you aren’t able to pay off in one swipe. If you are charged any interest throughout the year, you can deduct it from your taxes.
  2. Any swipe fees. At any point during the year, if you paid a service fee to swipe your business credit card, deduct the fee.
  3. Late fees. The same can be said of late fees. You can write off any late fees you paid last year.
  4. Annual fees. Some business credit cards have an annual fee. If your card does, you can deduct the fee from your taxes.
  5. Miscellaneous credit card fees. All in all, you’ll be able to deduct any fees or charges you paid last year using your business credit card. Be sure you note any fees you incur, so you have this information on file.

Things to Keep in Mind When You File

Keep in mind, that these deductions are only available for business credit card transactions. You cannot write off fees and interest charges for any personal items. If you use your business card for anything personal, you’ll need to go through your statement and calculate the amount of interest paid on business dealings. However, it is best to use the card solely for business purchases to make tax season a little easier.

Lastly, if you have any questions about business credit card deductions or other deductions available to you, it never hurts to consult a tax professional. At this time of year, many firms are running specials and can help answer any questions you may have.

What is one of your favorite business or personal tax deductions?

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Save Money Shopping On These 2019 Sales Tax Holidays

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sales tax holiday

Every year, certain states hold tax holidays. During the events, they waive the sales tax on specific purchases, allowing shoppers to potentially save a substantial amount of money. A few of the sales tax holidays even align with the start of the school year, helping parents save a significant amount of money on school-related necessities.

What Is a Sales Tax Holiday?

A sales tax holiday is a special shopping event. On designated days, a state does not require retailers to collect state sales tax on specific purchase categories.

By buying eligible items during a sales tax holiday in 2019, you can reduce your total spending. The amount of savings you will experience varies depending on the state tax rate, though it can be substantial. As a result, sales tax holidays are major shopping events, especially for families who work with a tight budget.

However, some states do cap the cost of each item in order to qualify, based on its category. For example, you may be limited to $100 in per clothing if you want the tax-free benefit. Once you cross that threshold, the item is not eligible for the tax-free holiday.

Additionally, state sales tax holidays do not necessarily mean you will not pay any sales tax. Local sales tax may still apply. However, the total savings is still significant even if that is the case.

States With Sales Tax Holidays

Only 16 states have tax holidays. They are:

  • Alabama
  • Arkansas
  • Connecticut
  • Iowa
  • Maryland
  • Massachusetts
  • Mississippi
  • Missouri
  • New Mexico
  • Ohio
  • Oklahoma
  • South Carolina
  • Tennessee
  • Texas
  • Virginia
  • Wisconsin

The remaining states do not hold tax-free shopping events at any point during the year. However, it is also important to note that some states do not have sales tax. This means all purchases there remain tax-free. Here is a list of states that do not have sales tax all year-round:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

Other states exclude certain categories from sales tax as well. For example, clothing is always tax-free in these states:

  • Minnesota
  • New Jersey
  • New York
  • Pennsylvania
  • Rhode Island

Sales Tax Holiday Chart

The sales tax holiday schedules vary depending on the state. Here is a chart of the 2019 sales tax holiday events:

Alabama
In Alabama, the Annual Severe Weather Holiday is from February 22 through February 24, 2019. During the tax-free holiday, severe weather preparedness items, valuing no more than $60 each, are exempt from sales tax. Generators and power cords with price tags at or below $1,000 are also tax-free.
Alabama also has a Back to School Sales Tax Holiday from July 19 to July 21, 2019. During the event, the following items are tax-free, within the limits described. below:
    • Clothing, Shoes, and Some Accessories – $100 or less per item
    • Computers, Software, Computer Supplies –$750 or less per purchase
    • School Supplies – $50 or less per item
    • Books – $30 or less per book

Arkansas
From August 3 to August 4, 2019, the Annual Back to School Holiday makes various school-related items tax-free. Here are the limits:
  • Clothing and Shoes – items less than $10
  • Clothing Accessories and Equipment – items less than $50
  • School Supplies and Instructional Materials – no item price limit

Connecticut
Connecticut holds their Annual Back to School Holiday between August 18 and August 24, 2019. Clothing and shoes with price tags below $100 qualify.

Iowa
The first Friday and Saturday in August are Iowa’s Annual Sales Tax Holiday. In 2019, that will be on August 2 and August 3. Clothing and shows with sales prices below $100 will be tax-free.

Maryland
Maryland holds two sales tax holidays each year. Between February 16 and 18, 2019, energy star products (like appliances) are tax-free.
Between August 11 and August 17, 2019, clothing and shoes below $100 are not subject to sales tax as well as the first $40 or any backpack or bookbag.

Massachusetts
Massachusetts typically has the largest sales tax holiday, expected between August 10 and August 11, 2019. Nearly all tangible personal property with sales prices at or below $2,500 qualify. There are a few exceptions, including, but not limited to, telecommunications services, tobacco or marijuana products, motor vehicles, motorboats, meals, and gasoline.

Mississippi
Mississippi is another state with two tax holidays. On July 26 and July 27, 2019, the state holds their Annual Clothing Sales Tax Holiday. Clothing and shoes below $100 are tax-free.
Then, on August 30 and September 1, 2019, during the Second Amendment Sales Tax Holiday, a variety of hunting supplies, including certain firearms and ammunition, are not subject to sales tax.

Missouri
In preparation for the school year, Missouri holds an annual sales tax holiday. The following items are not subject to sales tax:
  • Clothing – $100 or less per item
  • Computers and Peripherals – up to $1,500 in value
  • Software – up to $350 per item
  • School Supplies – up to $50 per purchase
  • Graphing Calculators – up to $150

New Mexico
August 2 through August 4 is New Mexico’s sales tax holiday. The following items are exempt from sales tax:
  • Clothing and Shoes – less than $100 per item
  • Computers – up to $1,000
  • Computer Equipment – up to $500
  • School Supplies – less than $30 per item

Ohio
Ohio will hold a tax-free event between August 2 and August 4, 2019. The following items are eligible:
  • Clothing – up to $75 per item
  • School Supplies – up to $20 per item
  • Instructional Materials – up to $20 per item

Oklahoma
During Oklahoma’s sales tax holiday, scheduled for August 2 through August 4, 2019, clothing and shoes sold for under $100 are not subject to sales tax.

South Carolina
The South Carolina annual sales tax holiday is set for August 2 through August 4, 2019. It features one of the largest lists of eligible goods. The following items qualify:
  • Clothing, Shoes, and Accessories
  • School Supplies
  • Computers, Peripherals, and Software
  • Sheets, Blankets, Towels, Shower Curtains, Bath Mats, Pillows, and Other Linens

Tennessee
Between July 26 and July 28, Tennessee holds their tax-free event. Here is a list of eligible items:
  • Clothing – up to $100 per item
  • School Supplies – up to $100 per item
  • Computers – up to $1,500 per item

Texas
Texas has more tax-free holidays than any other state, typically hosting three each year. The first, set for April 27 through April 29, 2019, covers:
  • Generators – less than $3,000 per item
  • Emergency Ladders and Hurricane Shutters – less than $300 per item
  • Other Qualifying Emergency Preparedness Supplies – less than $75 per item
Then, between May 25 and May 27, 2019, you can get these items tax-free as long as they are Energy Star rated, up to the limits:
  • Air Conditioners – up to $6,000
  • Refrigerators – up to $2,000
  • Ceiling Fans
  • Incandescent and Fluorescent Light Bulbs
  • Washing Machines
  • Dehumidifiers
  • Dishwashers
  • Programmable Thermostats
Finally, from August 9 and August 11, 2019, the back to school event makes the following tax-free:
  • Clothing and Shoes – less than $100 per item
  • Backpacks – less than $100 per item
  • School Supplies – less than $100 per item

Virginia
From August 2 through August 4, Virginia’s sales tax holiday makes a slew of items tax-free. Here is a quick overview of the qualifying items and their limits:
  • Clothing and Shoes – up to $100 per item
  • School Supplies – up to $20 per item
  • Portable Generators – up to $1,000 per item
  • Gas-Powered Chainsaws – up to $350 per item
  • Chainsaw Accessories – up to $60 per item
  • Other Hurricane Preparedness Goods – up to $60 per item
  • Energy Star and WaterSense Products – up to $2,500 per item

Wisconsin
Wisconsin’s five-day tax holiday will occur from August 1 through August 5, 2019. The following items are eligible:
  • Clothing – up to $75 per item
  • Computer Supplies – up to $250 per item
  • Computers – up to $750 per item
  • School Supplies – up to $75 per item

It’s important to note that some states, like Florida, have held tax-free weekends in the past. However, they have not officially announced or approved an event for 2019 as of this writing.

Additionally, some of the information above is based on sales tax holiday patterns and not official announcements, as they have not been made as of this writing. However, since the states traditionally follow a specific schedule, the dates are expected to remain accurate.

Do you have big plans for the 2019 tax holidays? Let us know in the comments below.

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Tax Season 2019: 5 Things You Should Do Now to Prepare

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tax season 2019

With 2018 coming to a close, now is a great time to start preparing for tax season. Since there were multiple changes to the tax rules, you could be one of the lucky individuals whose taxes are more complicated this year. Early preparation now can make filing taxes a little less stressful. Here are five things you should do to get ready for tax season 2019.

1. Gather Basic Information

Although tax documents aren’t in the mail yet, there’s still a lot of information you can start gathering today. For example, locate the Social Security cards for yourself and, if applicable, your spouse and dependents. This ensures that, if you don’t find them and don’t know the numbers, you have time to request new cards.

Similarly, track down your copy of your tax returns from last year (2017 taxes filed in 2018) – being able to refer to them will speed up your filing this year.

There are various other items you can start collecting now, including, but not limited to:

  • Receipts for business or self-employed expenses
  • Records of rental property expenses
  • Property tax records
  • Educational expense records
  • Charitable donation records
  • Medical costs information

Any details that you can pull together today will make your filing day easier. Then, you can put the information into a folder and make sure it is ready.

2. Plan for Incoming Documents

While employers and various other entities have until January 31 to send tax documents to filers, that doesn’t mean you shouldn’t start planning for their arrival. Begin by figuring out which companies should be sending what, and create a list to track the information.

In some cases, you can refer to your previous tax filing for guidance. However, you can also create a simple list based on your situation.

As you start to plan, include potential records relating to income, such as:

  • Form W-2 for wages
  • Form 1099-G for unemployment benefits received
  • Form 1099-Misc for freelance work
  • Form 1099-R for annuity, IRA, or pension income
  • Form 1099-D for earned dividends
  • Forms 1099-B and 1099-S for the sale of property or stocks
  • Form W-2G for gambling winnings

In most cases, you won’t have documents coming in all of those categories, but that can give you an idea of what may be arriving. This decreases the odds that you will file before you have all of the documents on hand, as it is easy to accidentally overlook a potential incoming document during this hectic time.

3. Max Out Your Retirement

Both 401(k)s and traditional IRAs can result in tax breaks, depending on your situation. If you haven’t hit your annual contribution limit, then you may want to stash extra cash in your retirement account.

This could potentially increase your deductions, lowering your tax liability. Plus, it can make your retirement more secure.

For a traditional IRA, you can contribute $5,500 annually or less if you are age 49 or younger. For those 50 and older, the maximum amount is $6,500. Those limits do not apply to rollover contributions, so keep that in mind if you want to add more to your account and make sure you are calculating properly.

4. Figure Out What You Need to File

While all taxpayers essentially have to file a federal return, only some also need to submit a state return. If you haven’t moved and your financial situation is largely the same as last year, then you can use your previous tax returns as guidance.

However, if you have relocated to a new state or had a significant change in your financial situation, then you may need to file a state return even if you didn’t previously.

There are only seven states which don’t require a state income tax return. They are:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

Two states only need returns if you had income from interest or dividends. They are:

  • New Hampshire
  • Tennessee

If you live in any other state, then anticipate filing a state return as well, even if your move was recent. Additionally, be aware that you may have to file a nonresident tax return if you earned money in a state with state income taxes, even if you don’t live there.

5. Don’t “Spend” Your Tax Refund Before You Have It

Many people anticipate tax refunds each year, especially if they had one the year before. However, the tax law has changed significantly, so your tax burden may have changed even if much of your financial life remained steady.

If you want to use your refund for a big purchase, don’t spend the money now based on the assumption that you will get it back. You can’t be certain about your tax liability until you prepare your documents with all of the information on hand.

Ultimately, as the adage goes, don’t count your chickens before they hatch. Instead, wait until you know exactly how much you owe or how much you are getting back. Then, and only then, should you make a spending decision for your refund.

Do you have any tips for preparing for tax season 2019? Share them in the comments below.

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Three Things to Keep in Mind When Making Charitable Gifts

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charitable gifts

In 2017, Americans gave an estimated $410 billion in charitable gifts to organizations. This has continued the upward trend of giving we’ve seen in the U.S. in recent years. The majority of this giving was done by individuals. However, before you donate any of your financial assets, you will want to consider each of the following points.

1. The Reputation of the Charity

It is always important to be informed about the charity and its reputation before donating. Research the organization before donating a penny. Any worthwhile charity will spend 75% of its income on programs and upkeep rather than administrative costs. You may be able to find this information in the charity’s annual report. Considering these things before you donate financial assets as charitable gifts you will ensure you are supporting a good cause. It also helps you decide whether or not it fits into your financial plan.

2. Your Portfolio Balance

Donating financial assets to charity means you are also taking them out of your portfolio. You’ll want to consider how getting rid of certain assets will impact your overall finances and the balance of your portfolio. If you want your portfolio to grow, you won’t want to donate all of your growth-oriented stocks. Be sure you aren’t donating stocks that will impact your endgame. Consider consulting a stock advisor or financial professional to ensure the assets you are giving as charitable gifts won’t hinder your long-term goals.

3. Taxes

Donations made to qualified 501(c)(3) organizations are tax-deductible if you itemize your return. After the recent changes made to the tax law, the standard deduction has increased to $24,000 for married couples and $12,000 for singles. Because of this, many people have less incentive to make charitable gifts (at least for tax reasons).

However, if you donate appreciated stocks you may be permitted to deduct the full fair market value of the gift. This is true even if the amount you paid is only a fraction of the value it is today. On top of that, you may not be subjected to capital gains tax for stocks you sold or gifted to charity.

Another possible way to make a tax-deductible donation is using money from your IRA. After you turn 70 1/2 years old, you are required to begin withdrawing money from your account. You will have to pay taxes on this but you can exclude up to $100,000 of your required minimum distributions per year from your taxable income if you gift the money to a qualified charity.

If you are considering donating any of these appreciated assets to charity, consult your tax advisor before doing so.

Readers, are you giving any charitable gifts this season? How have you decided where to donate?

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New From the IRS: Increase in 401(k) and IRA Contribution Limits

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2019 401k and IRA contribution limits

In what is likely to be considered an unfamiliar statement, we have good news from the IRS today. Those of us hoping to throw a little extra cash toward our retirement savings next year, now officially can, with the announcement of new 401(k) and IRA contribution limits.

Every year around this time, the IRS makes a similar announcement detailing the updates for contribution limits and income thresholds. And for 2019, today is that day. According to the IRS, these increases are in response to “cost of living adjustments” and are effective for the 2019 tax year starting on January 1, 2019.

Here are a few highlights you’ll be interested in:

Highlights of the New 401(k) and IRA Contribution Limits

  • Increase in 401 (k) 403(b), most 457 plans and the federal Thrift Savings Plan to $19,000
  • Increase in contribution limit for IRAs to $6,000
  • Changes to phase-out ranges for IRAs
  • Changes to phase-out ranges for Roth IRAs
  • Change in the income limit for the Saver’s Credit for low- and moderate-income workers

From the IRS press release:

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Is this good news for you? Share your thoughts in the comments below.

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