Some great uses for a tax refund

(Assuming you’re fortunate enough to have one) If there’s a refund check coming, it’s a great opportunity to bolster your personal balance sheet. The typical refund is usually around $3,000, and most people receive their money within three weeks of filing their returns. Here are some great ways to stay ahead of the game:

• Boost retirement savings – You can contribute up to $5,500 to a Roth IRA for 2017 (or $6,500 if 50 or older) — and withdraw the money tax-free in retirement. You can contribute the full $5,500 as long as your income falls below $118,000 if single, and $186,000 if married filing jointly.

• Fund a taxable account – Buy shares in a mutual fund or stock, but you may have felt too risky for an IRA or not available in a 401(k) plan.

• Pay off that credit-card debt – If your card is charging 18%, it’s like earning 18% on investments.

• Rebuild your emergency fund – three to six months of expenses is a good rule of thumb.

• Build college savings – It’s never too early to start for your kids – or even yourself. Perfect opportunity for a 529 account. You will be able to use the money tax-free for college bills, and you could get a state income-tax deduction for your contribution.

• You can help your kids save – contribute to a Roth IRA for them. The kids are eligible as long as they’ve had earned income, such as from mowing yards or babysitting.

• Prepay a vacation – or put away for holiday gift-giving or other short-term goals.

• Invest in your home or home business – great for smaller projects.

• Plug gaps in insurance – Consider liability insurance and perhaps upgrading home insurance before Spring storms start…or buy a home generator!

• Give to others in need – you’ll feel good about it and have a tax deduction for next year!

Some Tax Breaks for Retirees

If you’re retired, here are a few suggestions you will want to take advantage of:

Deduct Medicare Premiums

If you become self-employed after you leave your job, as a consultant, for example, you can deduct the premiums paid for Medicare Part B and Part D, plus the cost of supplemental Medicare (medigap) policies or the cost of a Medicare Advantage plan.

This deduction is available whether or not you itemize and is not subject to the 7.5%-of-AGI test that applies to itemized medical expenses for those age 65 and older in 2016. One thing to remember: You can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by either your employer (if you have retiree medical coverage, for example) or your spouse’s employer (if he or she has a job that offers family medical coverage).

Consider a Former Vacation Home for Tax-Free Profit

The rules are clearly stated: To qualify for tax free-profit from theRead More

One More Marriage Penalty for Taxpayers

Here’s a new reason to just cohabit – if you and your loved one have a huge mortgage.

If you happen to be blessed as a high-income couple, it’s likely your taxes will go up. Your combined income might require you to pay a higher federal tax bill than would’ve been owed had you stayed single. With a change in IRS rules last year, an unmarried couple can deduct twice as much of their mortgage- and home-equity-debt interest than a married couple can.

In a court case that they lost, the IRS was forced to agree that the limits on deductions for mortgage interest – $1 million of mortgage debt plus $100,000 in home-equity financing – apply on a per-taxpayer basis, not a per-residence basis. So, a married couple is considered one taxpayer; an unmarried couple, two. That means an unmarried couple could deduct interest on a combined $2.2 million of mortgageRead More

New Due Date for Filing FBARs

If you have financial interests in, or signature authority over a foreign financial account (bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds), you may be required by the Bank Secrecy Act to report the account annually. Reports are made to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

April 15 is the new annual due date for filing FBARs. Section 2006(b)(11) of the Act changes the FBAR due date to April 15 to coincide with the federal income tax filing season.

The Act also establishes a maximum 6-month extension of the filing deadline. To implement the statute with minimal burden to the public and FinCEN, FinCEN will grant filers failing to meet the FBAR annual due date of April 15 an automatic extension to October 15 each year; specificRead More

5 Tax Breaks for College Costs

Besides scholarships (tax-free up to the cost of tuition and course-related expenses, such as books and supplies), there are several tax breaks designed to ease the effects of college costs, whether you’re saving to send your kids to college, paying for yourself, or considering some graduate work. The following 5 tips can help you take advantage of college tuition tax breaks available to you.

1. The Student Loan Interest Deduction
Student loan interest is interest you paid during the year on a qualified student loan. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.

You claim this deduction as an adjustment to income, so you don’t need to itemize your deductions on Form 1040, Schedule A, Itemized Deductions.

You can claim the deduction if all of the following apply:
• You paid interest on a qualified student loan in tax year 2016;
• You’re legally obligated to pay interest on a qualified student loan;
• Your filing status isn’t married filing separately;
• Your MAGI is less than a specified amount which is set annually; and
• You or your spouse, if filing jointly, can’t be claimed as dependents on someone else’s return.

A qualified student loan is a loan you took out solely to pay qualified higher education expenses that were:
• For you, your spouse, or a person who was your dependent when you took out the loan;
• For education provided during an academic period for an eligible student; and
• Paid or incurred within a reasonable period of time before or after you took out the loan.

If you paid $600 or more of interest on a qualified student loan during the year, you’ll receive a Form 1098-E, Student Loan Interest Statement, from the entity to which you paid the student loan interest.

2. 529 Savings Plans
529 plans let your earnings escape federal tax completely if the withdrawals are used for qualified college expenses, including tuition, fees, and room and board. Two-thirds of states give residents a tax deduction or another tax break for contributions. You are may invest in other states’ 529 plans, although to get the tax break, you’ll usually need to invest in your home state.

The attractiveness of 529 plans lies in their easy access as well as the tax benefits the provide. The plans set no income limit and have a high limit on contributions. If your kid skips college, you can change the beneficiary to a sibling or other relative without losing the tax break. But make sure to use the money for non-college expenses or you’ll be on the hook for taxes and a penalty on earnings.

3. The American Opportunity Tax Credit
The American Opportunity Tax Credit is worth up to $2,500 per student for each of the first 4 years of college. A student must be enrolled at least half-time for one academic period during the year in a program leading to a degree, certificate or other recognized educational credential.To qualify for full credit, your adjusted gross income must be less than $80,000 if you are single or filing as head of household, or less than $160,000 if you are married filing jointly. The size of the credit begins to phase out as your income rises, disappearing entirely for singles and heads of household earning more than $90,000, and for couples filing jointly earning more than $180,000. Money spent on tuition, fees and books (but not room and board) does count toward the credit. Read More

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