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Changes to Know Before Filing Your Federal Income Tax Return

by Scott Darling

Owning a home is part of the American Dream, yet standards on income, credit and debt are making it tougher to buy a home than it was 10 years ago. Even though requirements are relaxing, only three out of five borrowers get approved.

home ownerWhile stricter standards make it tougher for young families to qualify for a mortgage, millennials said they understand why these standards exist and think the tougher requirements won't stand in their way of buying a home.

Most tax law changes don't affect the average taxpayer. That's fortunate news, considering the U.S. averaged at least one tax law change per day every day between 2000 and 2012. 

Some tax changes generally happen every year, such as inflation adjustments to standard deduction and exemption amounts. Others happen every few years, like expiration or renewal of credits and deductions, new taxes and tax increases.

What can you do to ensure you maximize the benefit or minimize the negative impact of tax law changes each year? It's quite simple, says TaxACT spokesperson Jessi Dolmage.

"Do a dry run of your federal income tax return each fall," Dolmage recommends. "DIY tax programs are updated with the latest tax laws every fall so you can get an estimate of your refund or liability as it currently stands. The Q&A also reviews credits and deductions you can still take advantage of in the next few months."

You can do tax planning and calculate your 2014 taxes with a DIY tax return preparation solution (most are free to try) or with a tax calculator like TaxACT's.

Whether you start your taxes early or wait until the April 15, 2015, deadline, here's a list of key changes that could impact your 2014 tax return:

  • Personal and dependent exemptions increase to $3,950 per person.
  • The 2014 standard deduction is $6,200 for a single taxpayer and $9,100 for a head of household. The standard deduction for married couples filing jointly also increased to $12,400.
  • Several benefits have expired, although Congress may extend them for 2014 returns. Those include the tuition and fees deduction, educator expense deduction, deduction for mortgage insurance premiums, cancellation of some mortgage debt, nonbusiness energy property credit, and state and local sales tax deduction.
  • Did you purchase health insurance from the federal or a state-sponsored marketplace in 2014? If so, your marketplace will send Form 1095-A by Jan. 31. Simply enter the form information when your tax program asks for it.

If you qualified for the premium tax credit toward marketplace insurance, the information you need to report on your return will also be on Form 1095-A. Your credit amount, which was based on your best estimate of your household income at the time you applied for insurance, will be reconciled with your actual income reported on your tax return. If your income or household size changed since applying for insurance, so can your credit amount. You may receive a larger refund if your income was less than estimated, or you may have to pay some of the credit back if your income was more than estimated.

  • If you didn't have minimum essential health insurance for three or more months in 2014 and don't qualify for an exemption, you may pay a shared responsibility payment. The penalty is the higher of 1 percent of your 2014 income or $95 per adult and $47.50 per uninsured dependent under 18, up to $285 per family. Your tax program will ask simple questions to calculate your payment.

If you qualify for an exemption, keep in mind some exemptions require you to submit an application and supporting documentation before filing your tax return. Only paper applications are being accepted by marketplaces, so processing can take weeks. Once accepted, your marketplace will issue an exemption certificate number (ECN) that you report on your tax return in order to avoid the penalty.

Learn about more tax law changes at IRS.gov and TaxAct.com. Visit HealthCare.gov and HealthCareAct.com for premium credit and exemption information. (BPT)

Information courtesy of Chester County PA Realtor Scott Darling.

New Homeowner Tax Mistakes NOT To Make

by Scott Darling

It’s that time of year again; time to file your taxes.  You may or may not be happy about that but there are two taxesthings that are always going to happen, death and taxes.  On a not so morbid note, let’s look into a few homeowner tax mistakes  that folks typically make so that you can be sure to avoid them. 

Many times when folks purchase a home that needs a lot of renovations, they forget to keep the receipts for these renovations and take advantage of them at tax time.   Some home renovations can be a tax write off.   If you do such things as installing energy-efficient features into your home you need to be sure to take these as a tax right off.  There are some home improvements that will not qualify as a tax deduction but they will still be helpful if you ever decide to sell your home.

  • If you have been a home renter for many years, you may have been able to file a very easy tax form known as the 1040ez.  Do not make the mistake of thinking you can continue to file this simple form for taxes once you purchase your own home.  It may be to your benefit to talk to a tax professional about what all you can deduct once you become a homeowner and what forms to use.  You may in fact want to just hire a professional to make sure that your taxes are done correctly and save yourself a lot of worry. 
  • Be careful not to list your full escrow amount on your taxes.  Many homeowners try and list their full escrow balance on taxes.   You may be surprised to find that if you are a homeowner not all of your funds in escrow are used to pay taxes.  Again, hiring a tax professional may be in your best interest at least for the first year after becoming a homeowner.  Why have unnecessary stress when you can let someone who knows what they are doing take care of your taxes. 
  • You may find this surprising but many folks file their new home on their tax forms in the wrong year.  Remember that taxes are a year behind.  If you purchased your home in the first part of 2015, you do not need to include it in your tax return this year because you are filing 2014 taxes.  You can actually end up filling the wrong amounts if you make this mistake and that can lead to less of a refund than you had anticipated. 

Hopefully these tips will be helpful to you this tax season.  If you haven’t yet filed your taxes, go ahead and do so to avoid having to file extensions.  Better to get it all out of the way and enjoy whatever 2015 is going to bring your way and stop worrying about your taxes so that you can enjoy your new home!

2013 Tax Deductions For Chester County Homeowners

by Scott Darling

If you moved to your Chester County PA home in 2013 now is the time to anticipate itemizing deductions on your tax return. Take yourself to a quiet corner of your home and begin to plan for tax time in April. Here’s a partial checklist of some often overlooked deductions:

  • Mortgage Points: Most homeowners know that mortgage interest is deductible, but often forget that points are, too?  Points are actually prepaid interest and may be deductible as mortgage interest if you itemize deductions on Form 1040, Schedule A.
  • Moving expenses: If you moved more than 50 miles for a new job, expenses such as movers, renting a truck, storing and insuring furniture, connecting/disconnecting utilities, and the cost of lodging while moving can be claimed as deductible expenses. Refer to IRS Pub. 521.
  • Job hunting costs: When looking for a position in the same line of work you held previously, you can deduct expenses associated with trying to land a new position including out-of-town lodging, transportation, employment agency fees, business cards, and resume printing costs.
  • The standard deduction:  If you turned 65 last year remember you are now eligible for a larger deduction.
  • Medicare insurance and long-term care premiums: Medical expenses over 10% of Adjusted Gross Income are deductible. Remember to include the cost of Medicare Parts B, C, D, and supplemental insurance.
  • State sales tax: You still have a choice between deducting state income taxes paid or state sales taxes paid. Since you will choose whichever gives you the largest deduction, keep in mind the purchase of unusually large items like home building materials.
  • U.S. Armed Forces members, especially those serving in combat zones, face some special tax situations and are entitled to special tax benefits.  Click here for specific details. Moving expenses listed above also apply to the military.
  • Early withdrawal penalty:Did you cash in a CD last year? If you were charged an early withdrawal fee, you can deduct it directly on your 1040. Financial Planning and Management Expenses, Schedule A. Be sure the fee is itemized on the Form 1099 from your bank.
  • Investment Advice: The costs of investment newsletters, paid financial advisors, or other fees spent to manage your money can be deducted.

Remember the above is a partial checklist for your convenience. For more details concerning deductions related to moving to your home refer to www.irs.gov and/or consult a tax advisor.

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