What to Know for 2015 Taxes

There have been some changes this past year to Wisconsin law and Federal law.

Private School Tuition Deduction

2014 is the first year that Wisconsin allows a deduction for private school tuition.  If your children are in a private school, please bring a record of your tuition payments. The deduction for elementary school tuition is up $4,000 and for high school, up to $10,000.

Same-Sex Marriage

In October 2014, the Wisconsin ban on same-sex marriage was overturned by the Wisconsin Supreme Court. This now means that same-sex couples can file jointly as Married. Previously, they had to file as Single or Head of Household. A couple is considered married for the whole year if they were lawfully married as of December 31. If a spouse dies during the year, the couple may file a joint return for the year unless the surviving spouse remarries during the year. Lawfully married means a valid marriage in a state that recognizes same-sex marriage.

Affordable Care Act

Also known as ObamaCare, the Affordable Care Act, passed in 2010, requires all Americans to have health insurance as of 2014. There is a penalty for not having health insurance during 2014. It will be 1% of your yearly household income, or $95 per person for the year ($47.50 per child under age 18), depending on which amount is higher. It is not necessary to bring in proof of  health insurance, however, your tax preparer will ask you whether you had insurance for the entirety of 2014.

 

Consider remodeling your home

You can exclude up to $250,000 of the gain on the sale of your main home (of $500,000 for married filing jointly) if all you owned and lived in the home for at least 2 of the last 5 years, and if you didn’t sell another home within 2 year.
What this means is that if you spend some money to remodel, the increase in your sales price on the house may be tax free.
For example, say that your house is worth $100,000. But you spend $20,000 to remodel the kitchen and bathroom. If that remodel allows you to sell the house for $130,000, the extra $10,000 you get ($30,000 price increase minus the $20,000 cost of remodel) is tax free.

DISCLAIMER:

THE TAX TIPS ON THIS WEBSITE ARE FOR GENERAL INFORMATIONAL PURPOSES ONLY, AND MAY NOT APPLY TO YOUR PARTICULAR TAX SITUATION.  PLEASE CONSULT A COMPETENT TAX PROFESSIONAL ABOUT ANY QUESTIONS YOU MAY HAVE.

Don’t shy away from a home office deduction

  • Claiming a home office deduction is easier now, partly because Congress recognized that the work force has changed. Many more people are working out of their homes, so it’s not the audit red flag that it used to be. If you legitimately qualify for the deduction, there should be no problem. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there. But you must use the space exclusively for business.

 

  • You are entitled to write off expenses that are associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance and housekeeping). The percentage of these costs that is deductible is based on the ratio of the square footage of the office to the total area of the house. A middle-class taxpayer who uses a home office and pays $1,000 a month for a two-bedroom apartment and uses one bedroom exclusively as a home office can easily save $1,000 in taxes a year. People in higher tax brackets with greater expenses can save even more.

 

  • One home office trap that used to scare away some taxpayers has been eliminated. In the past, when you sold your house, whatever portion of your home was an office did not qualify for the tax-free treatment given to the rest of your house. But the Congress has had a change of heart. A home office still qualifies for tax-free profit. You do, however, have to pay tax on any profit that results from depreciation claimed for the office after May 6, 1997. It’s taxed at a maximum rate of 25 percent. Depreciation produces taxable profit because it reduces your tax basis in the home; the lower your basis, the higher your profit.

File and pay on time

Many people won’t file their returns if they owe tax and can’t pay. That’s the wrong way to go about things. Think of the IRS as your Mom. When it’s your mom’s birthday, she doesn’t want a present from you, but she does expect a card or a phone call. Same with the IRS. You make this seriously worse by not filing a return. But if you file, the IRS will work with you on whatever tax you owe.

To extend the deadline, file Form 4868 by April 15, 2013. This gives you a six-month extension to file. On the form, you need to make a reasonable estimate of how much tax you owe and include a for that amount. But once again, it’s better to file and not pay than to not file and not pay.

Provide dependent taxpayer IDs on your return

Provide dependent taxpayer IDs on your return

  • Children and other dependents provide substantial tax breaks, starting with the exemption of $3,700, and a $1,000 child tax credit for each child under age 17. But you have to provide a Social Security Numbers for your children and other dependents on your return. Otherwise, the IRS will deny the tax breaks.
  • Be especially careful if you are divorced. Only one of you can claim your children as dependents. With today’s computers, it’s fairly easy for the IRS to check that spouses aren’t both using their children as a deduction. If you forget to include a Social Security number for a child, or if you and your ex-spouse both claim the same child, the IRS will contact you to straighten things out.
  • The $1,000 child tax credit begins to phase out at $110,000 for married couples filing jointly and at $75,000 for heads of households.
  • After you have a baby, file for your child’s Social Security card quickly so you have the number ready at tax time. Some hospitals will do this for you. If you don’t have the number you need by the tax filing deadline, the IRS says you should file for an extension rather than sending in a return without a required Social Security number.

 

Avoid mixing business and personal finances.

At best, mixing personal and business money makes for confusion. At worst, you might be liable for additional taxes. Avoid this by having separate business and personal checking, and a separate business and personal credit cards.

 

If you have more questions please contact us here.

Roth IRA

Consider a Roth IRA. Although Roth contributions are not deductible, they could be the better than a traditional IRA because all withdrawals from a Roth can be tax-free in retirement. Withdrawals from a traditional IRA are fully taxable in retirement.

Contribute to retirement accounts

Contribute to retirement accountsRetirement_accounts 300

  • If you haven’t already funded your retirement account for 2013, you have until April 15, 2014. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA.  But don’t forget that the sooner you make the contribution the sooner you get tax-free growth.
  • To qualify for the full annual IRA deduction in 2012, you must either: 1) not be eligible to participate in a company retirement plan, or 2) if you are eligible, you must have adjusted gross income of $58,000 or less for singles, or $92,000 or less for married couples filing jointly. If you are not eligible for a company plan but your spouse is, your traditional IRA contribution is fully-deductible as long as your combined gross income does not exceed $173,000.
  • For 2012, the maximum IRA contribution you can make is $5,500 ($6,500 if you are age 50 or older by the end of the year).