Health savings accounts (HSA) provide an opportunity for people to save up for medical expenses using pre-tax dollars.
"A health savings account is an account that is specifically designed to be used with a high deductible insurance policy," notes Miriam Caldwell.
Contributions to a health savings account are tax-deductible. And as long as the funds are used to pay for medical expenses, distributions from a health savings account is tax-free. There are no restrictions on when the money must be spend, so the savings can accumulate from year to year until needed for a major medical expense.
This combination of tax-deductible savings plus tax-free distributions is a powerful money-saving combination, as Dana Anspach explains.
To be eligible for the deduction, individuals need to be covered by an HSA-compatible high deductible health insurance plan.
Did you relocate for work last year? If so, you might be able to deduct the cost of moving.
Moving expenses are deducted if a person started a new job and the new job is located at least 50 miles farther from your old home than the distance between your old home and your old job. This deduction is available for employees and self-employed people who relocated for work, and for Americans working abroad who retire and move back to the United States.
Employees who pay for any work-related expenses out of their own pocket may be able to deduct those expenses on their tax return.
March 17th, 2014, is the due date for filing corporate tax returns. Form 1120 for C-corporations and Form 1120-S for S-corporations for the year 2013 is due on Monday, March 17th, 2014. (The normal deadline is March 15th, but since the 15th falls on a Saturday, the deadline is moved to the next business day.) Corporations who operate on a fiscal year rather than a calendar year, however, have a deadline of the 15th day of the 3rd month after the end of its tax year.
The IRS now prefers that corporates pay their taxes through the Electronic Federal Tax Payment System (EFTPS). Be aware that it takes a couple of weeks to get fully set up on the EFTPS Web site, so business owners might want to register with EFTPS in plenty of time before any tax payments are due.
What follows is a list of resources to help business owners file their corporate returns. Read More...
Individuals who support children may be eligible for several tax credits to help reduce their federal income tax.
The child and dependent care tax credit is for families with children age 12 or younger. The credit is based on the amount of day care expenses. This credit is also available for dependents of any age who cannot care for themselves.
The child tax credit is for families with children age 16 or younger. This credit may be partially refundable, which is helpful for taxpayers who have little or no federal tax liability. The credit is gradually reduced as a person's income increases.
The earned income credit is for people age 25 to 64 who earn a modest income from working. The amount of the credit varies depending on a person's income and how many dependents they support.
The adoption credit provides a tax benefit of up to $12,970 for adopting a child.
Families with kids in college may want to look at the American Opportunity Credit and the Lifetime Learning Credit. These credits are based on the student's expenses for post-secondary education.
State tax refunds are sometimes considered taxable income at the federal level. This is the case when a person deducted their state income tax last year as an itemized deduction and received a refund from their state. In this situation, the state refund is picked up as taxable income on the federal tax return. The state refund is taxable because the person is receiving a refund for an amount they previously deducted -- something the IRS likes to call a "recovery." (If a person took the standard deduction last year, however, the state refund isn't counted as taxable income.)
The relevant source document is Form 1099-G, which is issued by the state tax agency reporting the amount of tax refund issued in the previous calendar year. Some states, however, have stopped mailing these out, such as New York. If you don't have a 1099-G, you could also look at last year's state tax return to see what the refund amount is, or you can see if you can download the Form 1099-G from your state's tax agency. The taxable portion of the state refund is determined by using a worksheet found on page 23 of the 2013 edition of the Form 1040 Instructions (pdf).
Social security benefits are non-taxable or partially taxable at the federal level, depending on how much income you are generating from other sources besides Social Security. Learn more about how Social Security benefits are taxed.
Benefits received for being unemployed is taxable income at the federal level, although it may be tax-exempt in your state. The relevant source document is Form 1099-G, and the benefits are reported on line 19 of the 2013 version of Form 1040. Learn more about the tax-treatment of unemployment compensation benefits.
Income from investments and related expenses are reported on different parts of Form 1040.
Interest income is reported on line 8 of Form 1040. Source documents include Form 1099-INT, Form 1099-OID and bank statements if no 1099 was issued. Schedule B is required if a person has more than $1,500 of interest to report.
Dividend income is reported on line 9 of Form 1040. The relevant source document is Form 1099-DIV. Schedule B is required if a person has more than $1,500 of dividends to report.
Capital gains from the sale of stocks, bonds, mutual funds and other investments are reported on Form 8949, with summaries recorded on Schedule D, and the net amount reported on line 13 of Form 1040. The relevant source documents are Form 1099-B, gain/loss reports from the broker, and trade confirmations for the original investment.
Capital gains income is measured by the difference between gross proceeds from selling the investment and the cost basis of the investment. The broker's Form 1099-B reports cost basis for "covered securities." Covered securities are investments for which a broker is required to report cost basis to the IRS. Some transactions on Form 1099-B might not show cost basis. Instead, this might be reported on the broker's year-end gain/loss report. If the broker doesn't show any cost basis, individuals will need to calculate their own cost basis using documents such as trade confirmations.
Expenses related to investments can be tax-deductible. If a person took out loan to purchase investments, the interest on the loan can be deducted as investment interest expense. Investment advice, management fees, safe deposit boxes and other investment expenses are deductible as well. Both of these are itemized deductions on Schedule A.
Interest, dividends and capital gains may also be subject to the net investment income tax. This is a new tax that took effect in 2013 for higher-income individuals.