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What Education Credits are Available?

What Education Credits are Available?

Tax relief

Taking advantage of any tax credit you qualify for can reduce your tax burden significantly. Filling out IRS forms can be daunting and confusing, especially when it comes to knowing what credits and deductions you can claim. The tax relief credits you may qualify for aren’t always clear. You don’t want to miss out on any tax benefits you’re entitled to, but you also don’t want to raise any red flags by claiming a credit that you don’t qualify for. 

Some of the education credits are significant and can help relieve some financial burdens you may be experiencing while attending school, along with having a job and other responsibilities. If you’ve attended college this year or are currently attending college, there are some tax relief options available. Here are some of the details so you don’t miss out on important tax advantages.

The American Opportunity Tax Credit

The American Opportunity Tax Credit helps taxpayers potentially increase their tax refund or reduce their balance owed. You can claim up to $2,500 in tax credits on your tax return, which can be used to purchase school supplies and materials, as well as be applied to tuition and other associated fees. The amount of tax relief you receive depends on your adjusted gross income. Single taxpayers should not exceed an adjusted gross income of $80,000, and married taxpayers filing jointly should not exceed $160,000. Anyone with a lower income than these numbers can take advantage of a refundable credit of up to 40%, which is received in the form of a check directly from the IRS if no taxes are owed.

The Lifetime Learning Credit

The Lifetime Learning Credit is also an important education credit to pursue. It allows taxpayers to take advantage of up to a $2,000 credit each year out of the first $10,000 in educational expenses. And as long as a taxpayer’s adjusted gross income does not exceed $58,000 for individuals and $116,000 for married filing jointly taxpayers, then a credit of up to $2,500 can be claimed. As the credit name indicates, there’s no limit on how many years you can claim the Lifetime Learning Credit, as long as you are enrolled in college and incurring educational expenses.

Rocket Tax offers virtual credit counseling and tax preparation to ensure you receive all of the tax benefits you can take advantage of. Education credits can put money directly back into your pocket, but you just have to remember and keep track of all the expenses you incur related to your education. Any tax relief amount can help you reduce the amount you owe after filling out your IRS forms or potentially give you a nice increase in your tax refund. We are here to help you make sense of all the education credits available to you, so contact us today to schedule an appointment and speak with a tax professional.

What’s the Difference Between a Tax Deduction and Tax Credit?

What’s the Difference Between a Tax Deduction and Tax Credit?

You don’t have to be a business owner or be self-employed to qualify for tax deductions and tax credits. When you take a look at the tax deductions list, there are numerous things you can deduct from your taxes depending on your situation. While both tax credits and deductions can help positively boost your tax refund, you may wonder what the difference is between them. We’ve got you covered to help you understand this aspect and which one is better for you.

Tax Deduction vs. Tax Credit

The standard deduction for 2019 is $12,200 for individual taxpayers. So if you earned a salary of $60,000 in 2019, then your taxable income would be $47,800. Most people qualify for this standard deduction, but other tax-deductible expenses can lower your taxable income as well. These could be in the form of medical expenses, home mortgage interest, charitable contributions and more.

A tax credit is a dollar-for-dollar reduction of the amount of taxes you owe. Take the Child Tax Credit as an example. For the 2019 tax year, you qualify for a tax credit of $2,000 per child. So if your federal income tax liability is $5,000 that you would need to pay, but you have two children, the $4,000 tax credit means you only have to pay $1,000.

Which One Is Better?

You should never turn down a tax deduction or a credit if you qualify for one since it’s putting money back in your pocket directly. The main difference to understand is a tax deduction reduces your taxable income by a percentage of the expense, while a tax credit reduces the overall tax liability and usually provides the most tax relief. The amount saved with a tax deduction depends on which tax bracket you are in. So if you fall in the 24% tax bracket, then every tax-deductible expense will reduce the taxes by 24% of the amount you paid on that item.

Know The Difference Between Standard And Itemized Deductions

A common question taxpayers have is whether they should take the standard deduction or itemize their deductions. Most of the time the standard deduction provides the best tax relief, but it all depends on the amount of your itemized deductions. The standard deduction for individuals is $12,200 in 2019, so unless your itemized deductions exceed this amount, then it makes the most sense to just use the standard deduction. It’s still worth the time to look at the tax deductions list to ensure you’re maximizing your tax-deductible expenses though.

Rocket Tax offers credit counseling and other services needed by taxpayers. Understanding the difference between a tax credit and a tax deduction can help you have a better picture of your overall tax situation. Once you know what you qualify for, or even if you’re unsure, feel free to let us know and we can provide some clarity. Never hesitate to contact us for any of your tax preparation needs.

Which Work Devices are a Write-Off?

Which Work Devices are a Write-Off?

Owning your business means you get to take advantage of many different perks. You can look at the tax deductions list on the IRS website to get an idea of what work devices can be written off. However, there are some specific things about each device you need to understand so you deduct the appropriate amount. It’s never good to blur the lines of your personal life and your work life when it comes to the IRS. These devices are usually safe to write off on your tax return when you understand the rules.

Computers And Similar Technology

According to the IRS tax deduction list and explanation, the business expense you attempt to write off should be reasonable, customary and necessary for your business. So your computer, tablet, notebook or laptop can be classified as business expenses if they fall into those categories. Where it gets tricky is when you keep these items at home and also use them for personal things. It’s best to get a close estimate of how often the device is used for business purposes compared to personal and only deduct the percentage used to run your business.

Cell Phone And Internet

Your cell phone is similar to other types of technology, where you can only deduct the percentage you use for your business. If you have a personal phone and a business phone, then the business phone can likely be deducted 100%. But if you use it for both purposes, only writing off 50% may be more realistic. The same goes for your internet usage at your office or in your home. And if you purchase internet from your hotel, airline or other places while traveling, you can deduct that expense.

Specific Types Of Software

Writing off any software packages you purchased can provide tax relief as well. In most situations, word processing software or programs that help you keep track of your business expenses and income can be written off. But just because you purchase a software package for your work computer doesn’t mean the software can automatically be written off. There has to be a true business purpose for the software. Otherwise, it’s considered to be personal and would not qualify according to the tax deduction list.

It’s easy to get lost in all of the rules of what can be considered a business expense for tax deduction purposes and what isn’t. The tax deduction list isn’t as clear-cut as some people think it is, so the safest bet is to allow a professional tax preparer to help. Rocket Tax offers tax preparation services to ensure small business owners like you get the most tax relief possible. Some people don’t take enough advantage of the deductions available to them, while others try to do too much. We can help ensure your tax return is accurate to prevent any red flags with the IRS. The tax deadline is approaching, so contact us today to see how our services can help you.

How Does the Coronavirus Stimulus Package Impact You?

How Does the Coronavirus Stimulus Package Impact You?

When the coronavirus began spreading rapidly across the country, immediate action was needed to help individuals, families and businesses impacted by it. The Coronavirus Aid, Relief and Economic Security Act (CARES) was a $2 trillion stimulus package designed to do exactly that. Most people should have received their allotted IRS payment of $1,200 for an individual, $2,400 for people married filing jointly and $500 per qualifying child in the household. These payments were based on your most recent tax filing. And if you have not yet filed your 2019 taxes, then you may receive a tax credit with your 2020 tax return to ensure you receive the proper amount. Here are some other ways the coronavirus stimulus package may impact you.

Unemployment Payments And The Paycheck Protection Program

The dollar amount of unemployment payments increased by $600 per week through July 31, 2020. The qualifications for unemployment has also expanded temporarily to help people who previously may not have qualified, like freelancers, part-time workers, independent contractors and self-employed workers. The Paycheck Protection Program was also implemented to help small businesses with less than 10,000 employees keep the majority of the workforce on the payroll with benefits. If you lost your job or had to temporarily close your business due to the coronavirus pandemic, these aspects of the CARES Act may be the most impactful for you.

No Penalties On Early Retirement Withdrawal

Typically individuals have to pay a 10% penalty for withdrawing funds from their retirement plan before reaching the required age. However, this penalty is waived for up to $100,000 of funds withdrawn as long as you qualify as being impacted by the coronavirus.  The qualifications include:

  • You or someone in your household is diagnosed with the coronavirus
  • Experiencing financial hardships due to the inability to work
  • Reduction in hours worked as a result of the coronavirus
  • Inability to work due to child care closures

Are Stimulus Payments Made If No Tax Return Is Filed?

If you don’t file a tax return due to only having disability income, social security retirement or railroad retirement benefits, you may still qualify for an IRS payment through the CARES Act. The IRS payment will come via the same method you use to get your regular checks, either by mail or direct deposit. The same goes for anyone who only received Veteran Affairs benefits and don’t file a tax return as a result.

Tax Credits For 2020

Your tax situation may have changed this year compared to your most recent tax return filed. Since the IRS payment is made based on your last-filed tax return, you may not receive a portion of your stimulus payment if you recently had a child, were removed as a dependent from someone else’s tax return or other circumstances. However, you may still get tax relief on your 2020 taxes in the form of a credit for the amount you should have received.

Rocket Tax is here to help you understand exactly how the CARES Act impacts you directly. Everyone has been impacted differently, so contact us today to see how we can help you get the most tax relief possible before the tax deadline.

Hidden Credits and Deductions You Should be Aware Of

Hidden Credits and Deductions You Should be Aware Of

The tax deadline is quickly approaching. Not only do you need to get all of your tax documents together for a simple and seamless filing experience, but you should also take a look at the tax deductions list to see what you may qualify for. Common deductions like your home mortgage interest are well-known. However, there are other hidden credits and deductions to maximize your refund that you may not know about. Here are some you may qualify for and need to be aware of when preparing your taxes.

Major Life Changes

Having a child is a big event and qualifies you for some tax relief via credits and deductions. So does getting married. But did you know, if you got married at a church or a specific historical venue, any money you paid to the actual venue could qualify as a charitable donation? This charitable donation can be put on your tax return to boost your refund significantly, depending on how much you paid for the venue.

Medical Expenses

A lot of medical expenses are found on the tax deductions list, but too many people overlook some of them. If you have a medical condition or disease diagnosed by a doctor, then you may be able to deduct some of your travel expenses to and from a medical facility. This includes your mileage, toll bills and parking fees. You can also get some tax relief by deducting certain medical aids like hearing aids, crutches, orthopedic shoes, canes, contact lenses and eyeglasses.

Health Improvements

If a doctor diagnoses you with a specific mental or physical illness or condition and prescribes you to take classes or workout sessions, the fees paid may be deductible. This would include anything from gym membership fees to weight-loss programs and any other program directly related to your condition. It’s important to note that your doctor must prescribe these memberships or programs for them to qualify, so be sure to get written directions from them as proof.

Job-Related Moving Expenses

Moving to a new location for a job can be costly, but necessary in many situations. The good news is if you moved at least 50 miles away primarily for job purposes, then the moving expenses can be considered tax-deductible. The only catch is you have to be employed at the new job for 39 weeks or more. Your tax professional can help you ensure the qualifications are met since every situation is unique.

Rocket Tax is here to help taxpayers make filing their taxes a simple process. We keep up with all of the latest tax laws so our clients don’t have to. All we need to know from you is what happened in your life for the tax year we are helping you prepare, and we will identify every possible tax deduction and credit you qualify for. Get a head start by looking at the tax deductions list on the IRS website, then gather your documents in preparation for filing. We are also available by appointment if needed, so contact us at any time to schedule yours today.