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Weekly Tax Tips 2014

Tax Day 2014 has passed. Thank goodness!

While it was a pretty tame tax season -- enough so that the Internal Revenue Service commissioner sent out a thank-you note to the tax community -- the filing season always is a bit of a hassle. That's probably why 10 million or so of us file for an extension.

If you're part of this group, to which I'm once again a proud member, welcome! And welcome to this year's round of Weekly Tax Tips.

Tax_tip_icon_pencil_point2 Each Wednesday we'll feature a piece of tax advice. Some will help all us procrastinators -- yes, I'm one of them. No judging! -- finally file our 2013 returns. Others will offer some ways to trim our now accumulating 2014 tax bills.

The weekly tips will run from now, April 16, through Dec. 31. Yes, Virginia, taxes must be considered even amid Christmas and New Year's Eve celebrations.

A stray tip or two might even show up in the opening week/weeks of January 2015 as we transition into that filing season. Too soon? Sorry.

So be on the lookout (or BOLO as some former IRS officials might say) for the Weekly Tax Tip posted every Wednesday in the top right column of the ol' blog.

If you miss one or just want to peruse the tips list, bookmark this page and visit at your leisure all the ways to pay fewer taxes.)

  1. Tuning up your tax records -- Your taxes are done. Now you've got to deal with all the filing and background material you used to file your return. Fear of the Internal Revenue Service turns many folks into tax hoarders. Stop. You do need tax records, but probably not as many as you thing. A good rule of thumb is to hold onto tax papers until the chance of audit passes, which generally is three years from when you filed. Hang onto tax records related to assets, such as stocks or real property, until you sell them. You'll need records of your retirement contributions until at least when start taking distributions. And if you own your own company, make sure you keep separate personal and business records. Finally, the key with any record keeping system is to pick one and stick with it. (April 16, 2014)
  2. Dealing with a wrong refund -- Your refund finally arrived, but it's not what you expected. Now what? Regardless of whether the refund amount is less than you figured on your 1040 or is more, there are some steps you can take to resolve the matter. First, find out why. The discrepancy could be due to math errors in figuring your tax bill, incorrect credit or deduction claims, improperly credited estimated tax payments or offsets to cover other debts, such as an unpaid federal student loan or missed child support payments. If it's a tax return related issue, the Internal Revenue Service will send you written notice of why your refund amount is not what you expected. If it's an offset, the Treasury Offset Program will do the same. If your tax records support the refund amount you claimed, let the IRS know. And if you find an error before the IRS does, file an amended return to correct it. (April 23, 2014)
  3. File Form 1040X to fix old tax errors -- If you just discovered an error on an old tax return, you might be able to correct it. All you need is Form 1040X … as long as the mistake was made on a return you filed within the last three years. You'll also have to show the Internal Revenue Service what items you originally reported, what changes you are making and why you're doing so. You'll have to do so the old-fashioned way, on paper. The IRS is working on making amended return filing electronic, but it's not there yet. If you do amend a federal return, note that it likely will affect that year's state return you filed, too. And don't be hesitant about filing a 1040X if it means you'll owe more than you did originally. The IRS probably will discover the mistake, too, and until then penalties and interest will continue to accrue. (April 30, 2014)
  4. Keep an eye on the kiddie tax -- Introducing your children to investments is a key part of their financial education. But as parents, you also need to be careful of the kiddie tax. This law was enacted in 1986 as a way to keep wealthier parents from shifting income to children where it would be taxed at a lower rate. Over the years the rules have tightened. Now at least a portion of a child's unearned income (indexed annually for inflation) is taxed at his or her parents' top tax rate until the child turns 19 or 23 if he or she is a full-time student. That could be as high a 43.4 percent -- 39.6 percent under ordinary tax brackets with a 3.8 percent added tax for wealthier filers. The family also must decide whether the child or the parents report the kiddie tax earnings on Form 8615 or Form 8814, respectively. Note that when a parent adds a child's income to the adult's return, in addition to upping the tax bill, the extra money could mean the loss (or at least a reduced benefit) of some tax deductions and credits that are phased out as income grows. Yes, it's complicated and takes some planning. But mastering the kiddie tax is a good lesson for both children and their parents. (May 7, 2014)
  5. Take advantage of Coverdell flexibility -- The Coverdell education savings account (ESA) isn't big, but it is more flexible than other educational tax breaks. In addition to college costs, Coverdell money can be used for eligible kindergarten through 12th grade expenses. A Coverdell is established for the benefit of the minor child (age 17 or younger unless a special needs child) and any one can contribute to ESA. There is a limit though. An annual maximum of $2,000 is allowed per account, not contributor. That means if grandma puts in $1,500 all other contributors can add only $500 more. And while the contributions aren't tax deductible, they do grow tax-free. The funds can be withdrawn without incurring a tax bill as long as they are used to pay eligible schooling costs, which includes some pre-college expenses, such as tuition, room and board, books and computers for public, private or parochial elementary and secondary schools. (May 14, 2014)
  6. Home sweet homeownership tax benefits -- Owning a home is the American Dream. It also provides many tax breaks. These tax breaks are available for any abode -- mobile home, single-family residence, town house, condominium or cooperative apartment. Even a boat or RV can count as your primary residence as long as the vehicle or watercraft has kitchen and bathroom facilities. Mortgage interest typically is the major home-related itemized deduction. Property taxes also are deductible. Many home improvements, while not immediately tax deductible, could pay off in tax savings later. And even when you get ready to leave your home, it offers a tax break. Most homeowners don't owe any tax on home-sale profit. (May 21, 2014)
  7. State taxes, fees add to gas prices -- Every state adds some taxes and other fees to fuel costs. Most have their own excise tax, a companion to the 18.4 cents per gallon federal gas tax. But some states also add sales taxes, as well as fees to pay for environmental programs. If you're driving a gas guzzler, your fill-ups could come to quite a pretty penny. Check out the 10 states that, as of the April 2014 American Petroleum Institute survey, had the highest gasoline taxes in the country. (May 28, 2014)
  8. Tax implications of gambling winnings, losses -- If you gamble, regardless of whether it's a few dollars on sure bet at the horse track, a skins with your weekend golfing buddies or a handful of coins at the local casino's slots, you need to know the tax rules that affect your winnings or losses. When you win, no matter how much or how little or even whether it was legal, the Internal Revenue Service expects you to pay tax on your payout. Report your gambling winnings as "other income" on line 21 of Form 1040. But you can reduce your taxable winnings by deducting your losses. That's what PGA pro golfer John Daly did, using $55 million in gambling losses to zero out his winnings. You must itemize to claim gambling losses, entering them in the "other miscellaneous deductions" section of Schedule A. Note, however, that while your losses can erase any taxable winnings you have, that's as far as they go. You can't use excess gambling losses to lower other taxable income. (June 4, 2014)
  9. The skinny on paying estimated taxes -- Summer's here and so is the second deadline to send in your estimated tax payment. That 1040-ES amount is due this year on June 16, a day later than usual since the standard June 15 due date is on Sunday. It's one of four extra tax payments a year that are necessary if you get money that isn't subject to withholding. This includes self-employment income, earnings from investments and prize and gambling winnings. If you don't make the estimated payments, you could face tax underpayment penalties. (June 11, 2014)
  10. Disaster help from the IRS, really! -- Hurricanes, tornadoes, wildfires. Whatever the disaster, you might be able to get some tax help. And if it's a major, presidentially declared disaster, you get special tax treatment. You have the option to refile your prior year's tax return and get an amended refund sooner to help you start making much needed repairs. Here's hoping you don't need to use these disaster-related benefits. But be prepared, for both the storms and subsequent tax filings, just in case. (June 18, 2014)
  11. 10 mid-year tax moves to make -- Life gets super hectic when December rolls around. So why add to the craziness by putting off tax planning until then, too. Now, with half the tax year left, is the perfect time to make some tax moves that can cut your coming tax bill. Simple things such as contributing to retirement accounts, giving to charity and saving your kids' day camp receipts can really pay off. So can getting organized and hiring a tax professional. Tax planning might not be your favorite way to spend summer, but taking some time now can mean a lower tax bill in a few months. (June 25, 2014)
  12. Tax effects on major life events -- How's your life going? The mundane is generally punctuated by big events: weddings, babies, job changes. Congratulations on any and all special circumstances you encounter now and in coming years. And remember, these major changes to your life also could mean major changes, and savings, on your taxes. (July 2, 2014)
  13. Capital gains and your home sale -- Your home is not just where you and your family live. For most homeowners, it's a great tax break when you sell. As long as the house you own (along with, for most of us, the bank that holds the mortgage) for two of the five years before you sell, a large chunk of your sale profit will be free from tax. The home-sale tax exclusion amount is $250,000 for single homeowners/sellers and $500,000 for married couples. Those amounts mean that most homeowners don't owe any tax when they sell. (July 9, 2014)
  14. Kids, summer jobs and taxes -- Summer employment is a time-honored coming-of-age tradition. It also could have tax consequences for working teens. A young worker will have to deal with W-2 and W-4 forms and filing a return the next filing season to get withholding back as a refund. When the job is one where gratuities are common, the young worker will have to deal the tax on tips. Or if the youth has an entrepreneurial inclination or takes a position as a contractor, self-employment taxes will come into play. (July 16, 2014)
  15. Summer 2014 sales tax holidays -- It's time for a summer perennial, the back-to-school sales-tax holidays. But in many of the 17, states holding tax-free events this year, the savings go beyond classroom items. The first holiday started July 25 in Mississippi. The bulk of the tax holidays are the first weekend in August. The summer events wrap up in mid-August. So make your shopping lists and be sure to double check your state's guidelines on what's nontaxable and when tax is still collected your tax holiday. (July 23, 2014)
  16. Tax break for summer day camp costs -- Sending the kids to day camp during the summer provides a welcome break for many parents. It also can give those moms and dads a tax break on their annual tax returns. The cost of the day camp can be counted in figuring the child and dependent care tax credit. Remember, though, day-only camps count. If you send the kiddos to sleep-away camp, that expense isn't eligible for the tax credit. (July 30, 2014)
  17. Tax rules on renting your vacation home -- Did you rent your vacation home this summer? If you know, and follow, the tax rules, you could take advantage of some nice tax breaks. There are three basic second-home rental tax situations: 1) You rent the property to others most of the year; 2) You rent the property to others for a very short time; and 3) You use the property yourself and rent it when you're not there. Basically, the amount of time you personally spend at your second home determines how much tax you might owe on rent, as well as the deductions you can claim against the property. So learn the rules, and get the "for rent" ads ready. (Aug. 6, 2014)
  18. A primer on educational tax breaks -- School's back and so are the accompanying educational costs. Even students in kindergarten through grade 12 incur some expenses. The biggest bills, however, usually are faced by college kids and their families. A bit of homework, however, can help you determine which of the several federal tax breaks could help pay some of your school costs. They include the American Opportunity and Lifetime Learning tax credits, 529 and Coverdell savings accounts, as well as above-the-line deductions for student loan interest and, if Congress renews it, for tuition and fees. (Aug. 13, 2014)
  19. Catching up on Coverdell's many education benefits -- You can't put much money into a Coverdell Education Savings Account (ESA), just $2,000 per child's account per year. But in some instances you can use the money tax-free before the kids go to college. Qualified educational expenses, such as computers, can be paid for with the tax-free Coverdell money while the account beneficiary youngster is in kindergarten through grade 12 classrooms. And if the student doesn't use all the cash in the Coverdell ESA for school by age 30, it's not wasted. The account can be transferred to a relative. (Aug. 20, 2014)
  20. Tax breaks for combined business, personal travel -- Taking a business trip? Tacking on a couple of personal days can provide a mini-vacation that Uncle Sam will help partially pay for. Sure, you'll still have to cover your personal costs and those of your family if they come along for the ride. But your eligible professional expenses, from transportation to lodging and possibly even some meals, will be deductible on your business tax return. There are three key things to keep in mind. Spend more time on the trip doing business than having fun. Make sure your business expenses are ordinary and necessary. And keep good records and receipts. (Aug. 27, 2014)
  21. Bunching can maximize your itemized deductions -- Most people claim the standard deduction. But those who do get better tax results by filing Schedule A often end up wasting some claims. The problem is their tax receipts fall short of some itemizing thresholds, such as the 7.5 percent needed to claim medical costs or the 2 percent needed to claim miscellaneous expenses. You can get around this roadblock by bunching expenses. Here you push some expenses into a future tax year when you'll have enough to clear the itemization hurdles. Or you pull them into this tax year instead of the next because you have enough other similar expenses now. (Sept. 3, 2014)
  22. Taking pet-related tax write-offs -- Your pet may be a family member, but the Internal Revenue Service generally doesn't think so when it comes to reducing your tax bill. There are, however, a few cases where you might be able to claim an animal as a tax break. They include medical deductions, business expense claims, hobby cost write-offs, charitable donation deductions and gross income adjustments for moving your pet to your new home. Some folks also set up pet trusts to ensure their furry family members will be taken care of, but taxes are still due in most of these cases. And definitely don't try anything as crazy as naming a cat or dog as an officer in your company! (Sept. 10, 2014)
  23. Reporting retirement plan rollovers -- You completed a trustee-to-trustee transfer of that former workplace retirement plan to an IRA. Smart move. That rollover kept the 401(k) cash out of your hands so you won't face any taxes on the transfer. But wait? What's with this 1099-R you got? No worries. This third-party reporting form keeps the Internal Revenue Service apprised of your retirement savings move. You have to report what you did, but as the form should note, there was no taxable money involved. And that will help keep your retirement plans on track. (Sept. 17, 2014)
  24. Protecting innocent tax spouses from domestic abuse -- Domestic violence is a scourge that often reaches beyond the physical to the fiscal. And sometimes a troubled marriage, which is painful enough, takes a dangerous turn when taxes are part of the mix. The Internal Revenue Service has rules it must follow, but it also is working to make things safer for spouses who file innocent or injured spouse claims. And if at all possible, pre-empt such complications by filing separate returns. (Sept. 24, 2014)
  25. 8 tax breaks that could cost Uncle Sam trillions -- Every taxpayer should claim every tax break for which he or she is eligible. But the money that Joe and Jane Taxpayer save thanks to tax deductions, tax credits and income exclusions is money that the U.S. Treasury loses. Among the popular but costly tax breaks are individuals' mortgage interest, capital gains and dividends, state and local taxes, charitable gifts, federal retirement benefits, the Earned Income Tax Credit, workplace-provided health care coverage, and company-sponsored pension plans. These eight tax expenditures are projected to keep trillions out of Uncle Sam's hands over the next five years. (Oct. 1, 2014)
  26. Don't miss these often overlooked tax breaks -- In your frantic rush to finish your 1040 by the Oct. 15 extended filing deadline, don't be in such a hurry that you miss out on some tax breaks. There are lots of ways to reduce your tax bill. Some are for itemizers only. Others can be claimed by any filer. They include deductions for noncash charitable gifts and medical costs beyond just doctors' bills. Job-search costs might be deductible, as well as the costs to move for a new job. There also are tax breaks for parents, students, homeowners, retirement savers and military reservists. If any of them fit your tax circumstances, be sure to claim them. Some might not be back on your return next year. (Oct. 8, 2014)
  27. 10 common tax mistakes to avoid -- It's filing extension deadline day. Since you gave yourself the extra time to do the job right, make sure you do just that. Avoid making these 10 common mistakes at any tax filing time. They include 1) math miscalculations, 2) computation errors, 3) misspelled or different names (Take note for next year Mrs. Amal Clooney, née Alamuddin.); 4) direct deposit account numbers, 5) additional income, 6) filing status confusion, 7) Social Security number errors and/or omissions, 8) charitable contributions, 9) signature issues, and 10) missed deadline. Use these 10 items a checklist for your finally finished return before you submit it. (Oct. 15, 2014)
  28. Deducting your moving costs -- Uncle Sam will help pay some of your moving costs if you relocate for work and follow Internal Revenue Service rules. The key work requirement is that your new job be at least 50 miles farther from your previous residence than your last office was. You'll need the keep records of your move in case the IRS asks, but you don't have to itemize to claim your moving costs. This is an above-the-line deduction, so just enter your allowable expenses on Form 3903 and transfer the final tax-deductible amount from it to line 26 of your Form 1040. (Oct. 22, 2014)
  29. Voters to decide tax ballot questions -- In addition to voting for candidates on Nov. 4, voters in 11 states get to have their say about tax ballot questions. The tax topics include state income tax issues in Georgia, Tennessee and Illinois; real estate tax breaks for military veterans and their surviving spouses; gasoline tax rate increases; business taxes; and taxes on marijuana. The tax issues aren't just statewide. Some cities are voting on tax matters, too, such as soda tax proposals in Berkeley and San Francisco. While the overall number of ballot initiatives is down a bit in 2014, the questions that are going before the voters are getting a lot of financial support from advocates and opponents alike. More than $1 billion is expected to be spent on this year's ballot question campaigns. (Oct. 29, 2014)
  30. Tax record keeping tips -- Yes, documentation is critical for taxes. The receipts, bank and credit card statements and canceled checks can help justify the deductions and credits you claim on your 1040. But you don't want to be a tax record pack rat. Keep just the records that apply directly to your tax filing. And don't hang on to materials any longer than the tax law requires. (Nov. 5, 2014)
  31. Tax extenders uncertain outlook -- More than 50 tax laws known as extenders expired at the end of 2013. As the 2014 tax year is winding down, taxpayers are still waiting for Congress to renew them. They include a variety of business and individual tax breaks, including the popular state and local taxes itemized deduction, the tuition and fees above-the-line write-off and the option for older IRA owners to roll their required minimum distributions directly to a charity. Most expect the tax laws to be extended, but the outlook for that happening in the current lame duck congressional session is cloudy. (Nov. 12, 2014)
  32. Employee vs. contractor tax differences -- It's beginning to look a lot like the holiday hiring season. Companies across the country are adding short-term workers to handle the seasonal customer crush. That's especially joyous for the folks who finally find a job. But make sure you don't lose a big chunk of that extra income to taxes. What you owe the Internal Revenue Service and how you pay it depends how you're classified by your new, temporary employer. If you are considered an independent contractor instead of an employee, you could face some tax troubles at filing time. (Nov. 19, 2014)
  33. 10 year-end tax moves to make now -- Yes, April 15 is the big day for taxes. But to ensure that you don't owe Uncle Sam or get a refund that's much smaller than you expected, you need to make some tax moves by another date: Dec. 31. Here are 10 tax things to think about as 2014 winds down. (Nov. 26, 2014)
  34. Use or lose your FSA money -- When it comes to medical flexible spending accounts, usually referred to as FSAs, some companies offer a grace period. A rollover option also is now available. But many FSA owners still must spend this tax-favored workplace benefit by year's end. Here are some easy and good ways to do just that. (Dec. 3, 2014)
  35. Home-related December tax moves -- Homeownership offers a lot of residential tax breaks. But to get the most out of some of them, you need to act by the end of the year. For example, make your upcoming January mortgage payment and send your local property tax collector your real estate tax bill amount by Dec. 31 and you will get extra itemized deductions on your annual return. (Dec. 10, 2014)
  36. Use capital losses to cut your tax bill -- Sure, the market is going gangbusters, but all of us still have a few dogs in our portfolios. Don't fret. They can pay off at tax time. Sell the loser asset and use it to offset capital gains or even some ordinary taxable income. Just remember, such harvesting of tax losses and must be done by the end of the tax year. (Dec. 17, 2014)
  37. Get a tax deduction for charitable giving -- In the season of giving, don't forget those who are less fortunate. Your generosity also could provide a present for you. Donations to a charity can help not only the needy, but also might lower your tax bill at filing time. Just make sure you follow the Internal Revenue Service's charitable giving and deduction rules. (Dec. 24, 2014)
  38. Cash in on uncommon charitable gifts -- Your tax deduction can go beyond the usual contribution by check. The Internal Revenue Service accepts many different ways to donate and deduct your good will. Track and claim your volunteer mileage. Pick up the tab for some of your charity's operating costs. Host a student. Give appreciated property. Send Uncle Sam some bucks to pay down the federal debt. All these atypical donations could count on your Schedule A as long as you still follow IRS rules on charitable donations. (Dec. 31, 2014)

Missed some tips posted earlier this year? Check out the 2013 Daily Tax Tips from January, February, March and April. The daily tax tidbits will return when the 2015 tax filing season arrives next January.