Taxes & Your Savings

10 Travel Hacks when You’re on a Budget

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

  • There are ways to travel and go on vacation without having to go broke. 
  • If you’re looking to travel but don’t want to spend the high prices, consider planning around off-peak travel times. 
  • Find a hotel that has additional amenities, saving you more money in the long run.
  • Staying at a hostel is probably one of the most cost-effective ways to travel. 
  • Try doing some sightseeing and look for iconic landscapes that you can’t find back home. 

As the season gets warmer, and with summer looming just around the corner, it’s time to start planning on where you want to go on vacation – and, inevitably, spend more money than usual. Typically, flight costs go up as the temperature does and hotels start to upcharge a bit more than they usually do. So what do you do if you’re on a budget but still want to vacation? Believe it or not, there are ways to travel and go on vacation without having to go broke. 

1. Plan Around Travel Time

Certain times of the year can cause flight and hotel prices to go up because of the surge in tourists that are visiting their location. If you’re looking to travel but don’t want to spend the high prices, consider planning around off-peak travel times. 

If you’re looking to get more bang for your buck, start looking at countries that fit into your budget based on the price of their merchandise and how affordable the country is overall.

2. Check to see if your hotel offers free breakfast

Traveling can become expensive very quickly.  If you’re looking to take a more economical route, consider looking for a hotel that serves their guests’ breakfast. Some hotels provide a few morning snacks while others have a full continental breakfast served to guests every morning. In the end, it might benefit you to find a hotel that has additional amenities, saving you more money in the long run.

3. Hostels may be the cheaper option

Staying at a hostel is probably one of the most cost-effective ways to travel. Not only are you getting the lowest price compared to hotels or rentals, but you’ll also be able to have the opportunity to connect with many other travelers from all around the world. No matter where you travel to, there is usually a hostel that can accommodate you.

4. Explore the town

Believe it or not, the best experiences are typically free. Try doing some sightseeing, like looking for iconic landscapes that you can’t find back home. You could also try looking for hiking trails that may lead to hidden treasures or views you never dreamed of. 

If you’re planning to travel, try to get the most out of your experience without having to hurt your wallet. Always make sure that you compare prices against other hotels and prepare an itinerary ahead of time to project what possible costs you may have to incur. Traveling doesn’t have to be expensive, and you can still have an enjoyable trip without breaking the bank.

If you need tax help, contact us for a free consultation.

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Don’t Break the Bank this Valentine’s Day

  • With Valentine’s Day around the corner, it can become expensive to plan out activities for the holiday.
  • If you’re looking to save money, consider making dinner at home using fresh and/or seasonal ingredients.
  • Making a homemade gift is another alternative to purchasing roses or jewelry. Writing a love letter or creating something unique for your loved one might just be the extra effort to show that you care.
  • Preparing in advance for Valentine’s Day will allow you to splurge more without having to put a dent in your wallet. Make plans ahead of time to know how much you will need to save.

If you haven’t planned anything for Valentine’s Day yet and you’re on a budget, don’t start to panic just yet, as there are alternative options to make this Valentine’s Day memorable without having to break the bank. Most people associate this romantic holiday with dining out or giving extravagant presents as a declaration of one’s love, but don’t worry: there are still ways to show your love for your significant other while still staying on a budget. 

Romantic Dinner at home

If it slipped your mind and you forgot to make a reservation, or if you’re on a tight budget and can’t afford to spend additional cash for a fancy restaurant, don’t worry!  You can still have a delicious and romantic dinner without having to be concerned about how much the bill is coming out to. Making a home-cooked meal can be just as extravagant as a dinner at a fancy restaurant without having to shell out the same amount of cash. You can also check your local grocery stores to see what type of promotions or deals they’re having on their produce; more often than not, there’s a sale on some fresh, fancy foods. You can also stick to purchasing in-season vegetables and fruit as they are typically much cheaper than foods that are out of season. 

Homemade gifts

The cost of buying a Valentine’s gift can add up very quickly, especially if you’re buying multiple gifts. The price only goes up if you’re considering buying chocolates or flowers to go with it!  Although everyone loves to receive pricey gifts every once in a while, it isn’t necessary to actually spend the money on something that is already overpriced. Sometimes, the best gifts are the ones that you put the most thought and care into. Writing a letter or creating something by hand shows that you’ve taken the time to create something special and unique, and often can mean more to your significant other than something much more expensive.

Saving ahead of time

If you’re looking to splurge this upcoming holiday, start planning in advance how much you want to spend and what fits into your budget. Once you have an idea, you can start saving ahead of time to ensure that you won’t be caught off guard with any additional expenses. Just make sure that you have enough time to plan ahead and save extra cash, as restaurants typically start getting booked up the week before Valentine’s Day.

Whether you’re looking to save money this upcoming holiday or have a budget, it’s always a good idea to see what you can do to make the most out of Valentine’s day for you and your special someone. Valentine’s Day is about showing someone how much you care about them, there are many ways that you can do this without having to splurge. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Your Financial Diet for the New Year

man planting with son

With each new year inevitably comes the new year resolutions. For most, this is the time of the year we aspire to make big changes in our lives and create new goals to reach by year’s end. One of the most common resolutions that people make is about money: spend less and save more. Giving your finances a fresh start and taking a break from frivolous spending can be very beneficial to you – and give some breathing room to your bank account. This article details how to make your money a priority by starting towards new goals, making a budget and cutting out impractical spending that could affect the way that you save money.

Set goals

One of the first things you should do is to create goals for yourself for the new year. A good way to start is by writing down goals that are realistic and attainable for the year. Make sure that your goals are measurable so that you’re able to track your progress every month to ensure you’re staying on track to meet your objectives.  

Create a budget

Once you have decided what financial goals you want to focus on, it’s time to create a budget.  This will help to give yourself a visual representation of how you’re spending your money. You should start by figuring out how much income you make on a month-to-month basis. If you aren’t salaried or if you receive a commission as part of your compensation, and therefore don’t see a flat rate of pay each month, a good approach is to average out your income from the months prior to seeing what you earn on average. 

The next step is to determine what your spending habits are.  Some expenses are the same every month, such as your mortgage/rent or car payment, while other expenses vary month to month such as your utilities or groceries; you can take the average from your prior months to determine how much you can expect to spend. 

Get rid of the excess spending

After you’ve created a budget, it’s time to take a look at what you’re spending every month – and figuring out what expenses you can do without. A great way to look at where your money is going is by checking your bank statements. It may surprise you, but once you review your expenses, you’ll begin to realize how many times you’ve gone out to eat, went shopping for clothes or splurged a little extra at your favorite coffee shop. Once you are able to identify your impractical expenses, you can be more mindful of them so you can focus on putting more money in your savings. 

The new year allows you to press the restart button on any bad habits that you had previously and this includes how you are spending your money. If you’re looking to refresh your finances, make sure to make attainable money goals, make a budget to ensure that you stay on track and review your expenses regularly to avoid overspending. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Setting Financial Goals for the New Year

Women writing in her journal

The new year is the one time of year when everyone reevaluates their life goals and vow to make big changes in their lives. Typically, you’ll see people going back to the gym to reach their goal weight or decide that this is going to be the year that they’re going to travel the world. While any aspiration you set for yourself is a great start, some of the best resolutions are the ones with objectives that will help you move up into the dream position that you’ve always wanted or even buy that house you’ve had your eye on for a while. Here are a few simple tips to get you on the right track for both advancing your career opportunities and saving more money in the bank.

Look for growth opportunities

More and more companies are looking to create growth for employees internally. If you’re looking for a way to earn more money and gain a new set of skills, you may not have to look too far. You can start by looking at job listings that your company is hiring for, if you see something that interests you and you feel you’re more than capable of handling the position, talk to your recruiting team or even the manager of the department that you are interested in. Alternatively, you can also look at positions at other companies and apply.

Create a budget

With the new year comes new ambitions, which means it may be time to economize your budget for the year. Creating a budget means that you set limits on how much you are spending every month to ensure that you don’t overspend and cut into your savings goals. Typically, a budget requires you limit what your spending on necessary items you need throughout the month. For example, if you are going grocery shopping, stick to the basics that you will need; don’t spend frivolously on snacks and sweets just because you’re craving them at that moment. Avoid eating out consistently throughout the month and save it more for a special occasion. If you are looking to splurge, you can always allot a certain amount of money to spending on personal items throughout the month.

Build your savings

Having a cushion to land on if you fall onto hard times, or if you need cash right away in order to respond to an unexpected emergency, is exactly the reason millions of Americans open up a saving’s account.  If you don’t have one yet, then the new year is the perfect time to start. Whether you’re building your savings to invest in a house, vehicle, school, etc., it’s vital to have a savings account as a backup to ensure that you’re able to get out of a financial bind quickly.

Cancel old subscriptions

Make sure to review your monthly bank statements; you may be surprised to find you are paying for services that you no longer use or thought you had canceled long ago. Be on the lookout for subscriptions or gym services that are automatically being deducted from your bank account. You could potentially save yourself some money.

You don’t have to get a financial rut in the new year, with just a few simple changes you can get off to the right start and reach your financial goals. Looking for career opportunities, starting a budget, opening up a savings account or getting rid of old subscriptions could help you move in the right direction and provide you with a better outlook on your financial future.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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What to do if you need more money for the Holiday Season

Santa Claus on the run with bag

This holiday season is all about giving back to family and friends. It can become very expensive with all the gifts and food that you’re purchasing during this time, leaving both you and your wallet financially exhausted. Before you start becoming concerned about how you’ll get through the holidays, keep in mind that there are ways to prepare yourself mentally and financially. Below are a few ways to start preparing for the next holiday season without breaking the bank.

Start saving ahead of time

Not saving for the holidays can wreak havoc on your bank account and leave you in financial hardship. There are ways to prepare for the holiday season ahead of time to help you avoid going broke. One
way you can prepare is by saving up your change from the entire year. Believe it or not, your change will add up and could potentially cover the cost for several gifts you plan on purchasing. 

If you’re not the type to carry cash in your pocket that could give you change, you can always sell unwanted items that you’ve been holding on to. You can hold a garage sale, or you even sell your items on an eCommerce marketplace like eBay. This is an easy way to make money and clean out your home at the same time!

Look for Black Friday deals

With the holidays around the corner, nearly all department stores are preparing to put their products on sale. Typically stores will release their Black Friday deals in advance so you can review what items you want to purchase at a bargain price. Waiting for items to go on a discount is the best way to get some of the newest products for cheap.

If you have a really tight budget, you can also make homemade gifts. This will seem more like a personal gesture to someone as opposed to just purchasing a gift card and it will seem much more refreshing since everyone will be shopping for the latest tech on the market. 

Take on a seasonal job

If you plan on making the holidays an extravagant affair by buying the latest gifts for friends and family but don’t want to put a dent in your savings, consider taking a part-time seasonal job. This could help boost your holiday budget and give you the ability to spend more money on gifts. Seasonal jobs are typically flexible with the hours they assign so they can work around your schedule. This means that you can request to work just a few hours or ask for more hours so you can build a larger budget for yourself. 

With the holidays approaching, it can become very easy to get caught up in all the holiday shopping and spending. You don’t have to go broke buying presents for friends and family and there are solutions to getting everything on everyone’s wish list and not having to deplete your savings. To avoid curbing your spending, you can start saving in advance as well as look at what deals or sales will be coming up so you can save some cash while buying the most current item. Finally, if you’re wanting to splurge this holiday season but don’t have the cash on hand to do so, consider taking up a seasonal job for the holidays. All the money you earn can go towards the gifts you’ve been wanting to buy all year. 

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Criteria for Qualifying for a First-Time Abatement

homemade folder labels

The IRS’s first-time abatement penalty waiver was created as a way to combat penalties that accrued on a specified tax year due to either a failure-to-file, failure-to-pay, or failure-to-deposit penalty. Although this waiver was introduced over a decade ago, most taxpayers don’t realize that this form is accessible for them to remove any penalties that were tacked on to one of their tax years. If you meet one of the following criteria, this form may be able to help you reverse any penalties that were applied to your balance.

Failure to file your tax return or filing it late

Tax season can be one of the most stressful times of the year. Not knowing whether you’re going to receive a refund or owe the IRS can cause some taxpayers to avoid filing their tax returns altogether. For every tax year that is not filed or is filed late, the IRS will automatically tack on penalties for a failure to file. According to the IRS, the penalty for filing late or not filing at all is 5% on your balance every month. 

Failing to pay on time or make estimated tax payments

If you owe a balance after filing your tax return, the IRS will expect that you pay it off by the tax deadline. For those who are 1099 earners, it is strongly suggested that you make estimated tax payments throughout the year to ensure that you do not owe after you file your taxes. In the event that you fail to pay your balance in full, make estimated tax payments or negotiate an agreement with the IRS by the requested date, the IRS will begin to place penalties and interest against you until your balance has been paid in full. 

Failure to deposit certain taxes as required

Employers are responsible for withholding taxes from their employee’s paychecks. If they fail to periodically remit these amounts to the United States Treasury, the IRS will assess a failure to deposit penalty. The IRS sends a letter to every business that has employees that explains its federal tax deposit schedule, ensuring the business is aware of how frequently it is required to make its federal tax deposits. If a business fails to make them as scheduled in the correct amount or by the requested timeline, the IRS will charge a federal tax deposit penalty. 

It is safe to assume that most taxpayers don’t want to pay their taxes in addition to any penalties and interest that may have accrued, which is why the IRS created the First Time Penalty Abatement. To qualify, the IRS usually requires you to not have incurred any penalties for the past three years, have filed all your tax returns or an extension, and have made payment arrangements for any outstanding debt with the IRS. Taxpayers can request this form from the IRS or visit the IRS website to download the form.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Tax Tips: Your Child’s Summer Camp And Daycare Expense Tax Credit

Summer is right around the corner – the wonderful season of good ol’ sunshine and time for relaxing. School is out for summer vacation and with it comes a whirlwind of family activities and the seasonal tradition of sending your kids off to summer camp. And if you’re a working parent who depends on summer day camp and and daycare, you know summer also means dishing out some extra expenses.

Fortunately, you may have a break. Some of the added expenses may help you qualify for tax deductions and credits that can save you some money next tax season. Here are nine facts you need to know for claiming summer camp and daycare expenses, also known as the Child and Depended Care Credit:

  • Earned income. To qualify, you (and your spouse if filing jointly) must have earned income during the year.
  • Expenses must be work-related. Essentially, this means you’re paying for the camp or daycare for the qualifying child so you can work, or look for work.
  • Correct tax forms. To be able to claim this credit, you must file a Form 1040, 1040A, or Form 1040NR; you cannot claim the credit on Forms 1040EZ or 1040NR-EZ.
  • Age of your qualifying child or dependent. Qualifying child must be under the age of 13 and must be your dependent when care was provided.
  • Some qualifying care restrictions. Expenses for overnight camps or schooling/tutoring costs do not qualify – it is not considered a work-related expense for purposes of the credit. You also cannot claim the credit if you paid for someone else’s child or if someone else paid for your child.
  • Specialized summer camps. Camps that specialize in a particular activity, such as sport camps, math camps, or even art camps can qualify for the credit. Keep in mind expenses that go towards required, but personal items for the camp such as sports equipment, clothing, art supplies or even a laptop don’t qualify – they are still considered personal accessories.
  • Health-related expenses. The costs of “preparing” for the camp or daycare, such as required vaccinations or wellness exams are deductible if you itemize on Schedule A and if the total medical expenses during the year exceed 10% of your AGI, or adjusted gross income.
  • Qualifying childcare provider restriction. Your childcare provider cannot be your spouse, dependent, or the child’s parent.
  • “Are we there yet?” The costs to take your child to and from the daycare or camp location in your own transportation doesn’t qualify as an expense for purposes of the credit; however, if there are transportation fees associated with or included in the camp or daycare during operating hours, the costs may qualify as an expense.

The purpose of this tax break is to financially assists working parents and guardians involved with raising children (or caring for a disabled dependent). The tax credit can be up to 35 percent of your allowable expenses, depending on your income. The total expense limit is $3,000 for one qualifying child or $6,000 for two or more qualifying children.

Of course, we all know the tax code is very long and complex, so other exceptions and restrictions may apply. You can check out the IRS publication 503, Child and Dependent Care Expenses for full details about this tax credit on their website.

Can Student Loans Lower Your Credit Score?

Student loans are much like other loans. Your credit rating gets a boost when you make your payments on time. Likewise, when you fail to make payments on time, your loan could fall into a delinquent status, which also causes your credit rating to suffer.

94817320While the government allows you a certain period of time (for most, it’s six months) to begin paying off student loans once you leave college, not all students are able to begin making payments. However, instead of communicating with their lenders, they often simply ignore the debt, which has a horrible effect on credit scores. To avoid negative credit impacts, lenders offer many options to students who are struggling to make their payments, including deferment or forbearance. These options keep loans in good standing, while allowing you to buy a bit more time to get into a better financial situation.

Student loans are viewed as “good credit” and when they’re in good standing, can help you qualify for other forms of credit later on. However, your credit score can take a dive if you pay off your loans too soon. This is because you benefit from having more than one type of credit. Your student loan is an installment loan, and once it’s paid off, while you’ll save money by not paying all of that extra interest to your lender, you will be potentially removing one type of credit from your credit report.

Many student loan borrowers worry that they’ve ruined their credit because they have defaulted on their loans. The good news is that it’s never too late to make things right. Options are always available to help you repay those loans and repair your FICO score. It might take some time, but if you’re dedicated to resolving the issues, you’ll get there, perhaps even sooner than you think.

How to Use Tax Breaks to (Re) Establish Financial Independence

In the United States, approximately half of all households pay no federal income tax because their income is too low to trigger tax liability. If you or your family has experienced catastrophic setbacks such as serious illness, extended unemployment, bankruptcy or foreclosure or if you have always been poor, you may find it difficult to envision a future without deprivation or hardship.

But with hard work and determination, you can begin to establish or rebuild a financial foundation. The IRS provides tax credits that reduce the amount of income tax that you owe and deductions that reduce the amount of income you must declare on your tax return. The tax credits and deductions described below represent credits that may be an option for you. For specific questions about your tax situation, contact Optima Tax Relief for a consultation.

Child-Related Tax Credits

Ensuring the health and welfare of your children and finding reliable, affordable child care are essential components of re-establishing stability. The IRS provides three child-related tax breaks: Child Tax Credits, Child and Dependent Care Credits and Additional Child Tax Credits. The first two credits are nonrefundable – which means that you won’t receive a payment from the IRS. Additional Child Tax Credits are refundable – but only if you qualify. Even if you cannot receive a refund, you can significantly reduce your federal income tax burden.

Related article: Kid-Friendly Tax Breaks

Child Tax Credits allow you to reduce your federal income tax by up to $1,000 for each qualifying child. Originally set to expire at the end of 2012, Child Tax Credits were extended permanently through the American Taxpayer Relief Act of 2012, or the “fiscal cliff” deal. The IRS imposes maximum annual income limits above which Child Tax Credits begin to phase out: $55,000 for married taxpayers filing separately, $110,000 for married taxpayers filing jointly and $75,000 for all other taxpayers. (Source: IRS.gov)

There are also six criteria that determine whether a child qualifies for the credit: age, relationship, dependency, citizenship, residence and support.

  • Age: under age 17 at the end of the tax year
  • Relationship: child by birth or adoption, stepchild, foster child, sibling or offspring of any of the previous relatives
  • Dependency: claimed as a dependent on your federal income tax return
  • Citizenship: U.S. citizen, resident national or legal resident alien
  • Residence: lived with you for more than half of the previous year
  • Support: child cannot have provide more than half of his or her own financial support during the previous year

Additional Child Tax Credits. If you had earned income of at least $3,000 during the previous year, would qualify for the full Child Tax Credit but cannot claim the full credit because you don’t owe enough in income tax and filed Form 8812 with your federal income tax return, you may be able to get Additional Child Tax Credits as refundable cash. Under certain circumstances, families with three or more children may claim the credit even if they don’t meet the $3,000 income threshold.

Families with one or two children can collect the lesser of either:

  • Leftover funds from Child Tax Credits;
  • 15 percent of earned income over $3,000;
  • Leftover funds from Child Tax Credits;
  • 15 percent of earned income over $3,000;
  • Total Social Security and Medicare taxes paid minus refunds received from the Earned Income Tax Credit (EITC).

Families with three or more children can collect the greater of either:

  • Leftover funds from Child Tax Credits;
  • 15 percent of earned income over $3,000;
  • Total Social Security and Medicare taxes paid minus refunds received from the Earned Income Tax Credit (EITC).

Child and Dependent Care Credits allow you to exclude at least part of the costs paid for child and dependent care so that you may work or look for work. The IRS allows taxpayers to apply to $3,000 annually for expenses related to the care of one qualifying dependent, $6,000 for costs applied to care for two or more qualifying dependents or $5,000 for dependent care benefits supplied by an employer toward figuring the credit. Depending on your annual adjusted gross income, you may claim up to 35 percent of qualifying expenses.

Taxpayers must also meet the following criteria to qualify for Child and Dependent Care tax credits:

  • Caretaker cannot be a spouse or parent to the dependent child, to your own child under age 19 or a dependent of you or your spouse.
  • Married taxpayer must file a joint income tax return.
  • Taxpayer identification numbers must be provided for each dependent named on your tax forms.
  • Name, address and taxpayer identification number for care providers must be provided.

Earned Income Tax Credit

The EITC is widely recognized is one of the most effective mechanisms for eliminating poverty ever put in place by the American government. Created in 1975, the EITC allows low-wage earners earn more throughout the year or receive a refund by filing their federal income tax returns. According to a 2005 study from the Center for Budget Priorities, the EITC is especially effective in encouraging single parents to seek work.

Related article: Get Tax Relief With Earned Income Tax Credit

Households with dependent children and single workers between the ages of 25 and 65 with earned income below certain levels may qualify for the EITC. Eligible households may receive cash refunds even if they had no federal tax liability but must file a federal income tax return for the current year. Taxpayers may also claim the EITC for up to three prior years by filing Form 1040X.

Wage earners and self-employed workers with valid Social Security numbers may qualify for the EITC, but individuals in the following categories are not eligible:

  • Married filing separately
  • Filing as a nonresident alien
  • A dependent to another taxpayer
  • Taxpayers filing Form 2555 or Form 2555-EZ related to foreign income
  • Taxpayers with adjusted gross income above specified levels (subject to annual change)
  • Taxpayers with investment income above specified levels (subject to annual change)
  • Taxpayers denied EITC credits since 1996 for reasons other than math errors, unless they filed Form 8862 and received clearance from the IRS

Work-Related Education Credits and Deductions

For many individuals, education and job-related training provides the key to escaping poverty. Some states (such as California) provide work-related tax breaks. The IRS also treats scholarships, grants and qualified employer provided assistance applied toward tuition, books and other educational expenses (but not room and board) as tax-free income.

American Opportunity Credits provide partially refundable credits for the first four years of post-secondary education. Eligible taxpayers may receive up to $2,500 in credits and up to $1,000 in refundable credits. These credits, extended through 2017 by the fiscal cliff deal, replaced the Hope Credit.

Lifetime Learning Credits provide up to $2,000 (up to $4,000 for students in Midwestern disaster areas) in credits per tax return for undergraduate, graduate or professional education or job training. There is no limit in how many years you may claim Lifetime Learning Credits. But you may not claim American Opportunity Credits and Lifetime Learning Credits during the same academic year for a single student.

529 College Savings Plans. In addition to tuition payments, funds from 529 College Savings plans may be used to purchase computers or pay for high-speed Internet access.

Tuition and Fees Deductions can be used to reduce income subject to tax through deductions of up to $4,000 for tuition and related expenses. You may also deduct the lesser of $2,500 or the amount you actually paid in interest for student loan debt from your federal income tax returns.

To qualify for student loan interest deductions you must meet all of the following requirements.

  • Paid student loan interest in the previous tax year
  • Legally obligated to pay student loan interest
  • Did not claim married filing separately status
  • Earned less than the specified maximum gross adjusted income (subject to annual change)
  • Neither you nor your spouse (if married) can be claimed as a dependent by another taxpayer

Business Deductions for Educational Expenses. These allow wage earners who itemize deductions  to deduct educational expenses, including industry-related conventions that exceed 2 percent of their adjusted gross income. Self-employed taxpayers may deduct business-related educational and training expenses even without itemizing deductions. Educational expenses must either be required to keep your present job or improve your skills in your present line of work. You may qualify for the deduction even if your program leads to a degree, but not if the program is designed to qualify you for a new line of work.

Deductions for Job Search Expenses

Job hunting can be expensive. Résumés, travel-related expenses, employment agency fees and relocation costs can add up to hundreds or even thousands of dollars. Job hunting expenses related to seeking employment within your present line of work are deductible if they exceed 2 percent of your adjusted gross income. We’ve got an article full of tips on how to deduct job search expenses here.

If you seek employment far from where you live, your travel expenses, lodging and 50 percent of the amount that you spend on meals may be tax deductible. Relocation expenses may also be tax deductible. You cannot deduct job search expenses if you wait too long after leaving your previous job to start looking for a new job, or if you are looking for your very first job. How long is too long? There’s no set time, but if you decide to be a stay at home mom for a few years, then want to get back in the saddle, that’s too long.

As will all deductions and credits, qualifying is complicated and the rules are complex. Get professional advice if you need it; we at Optima Tax Relief are just a call away.

Photo courtesy: StockMonkeys.com

5 Questions to Ask Your Tax Adviser Now

The end of another year is rolling up fast. With the year-end comes your last opportunities to minimize your 2013 tax bill and make changes to your benefit plans for 2014. Here are some questions, posed by Forbes magazine, to ask your financial and tax adviser while there is still time.

1. Should you defer income or accelerate it in 2013? What about deductions?

The answer depends on whether you expect to be in a higher tax bracket next year. Tax rates stayed the same for 2014, but tax brackets are altered. Take a look at the new tax brackets and see if your situation has changed.

Higher bracket next year: Consider accelerating your income, pulling it into 2013, to minimize your current year tax.

Lower bracket next year: You may want to defer income if possible to pay less taxes in 2014. If you are age 70 ½ or older, you could save taxes by taking only the minimum required IRA distribution in 2013, and wait till January to take more. You can also prepay 2014 deductions – like property tax and estimated state income tax – and claim them in 2013 while your tax bracket is higher.

2. Should you recognize gains and losses now?

If you have gains on investments and you’re in a lower tax bracket this year than next, this might be an advantageous time to sell. If you are in the 10% or 15% tax bracket, you’ll pay zero capital gains tax.

If you are in a higher tax bracket this year, taking your unrealized losses now should reduce your 2013 tax bill.

3. Should you convert a traditional IRA to a Roth IRA?

Roth IRAs require you to pay tax on your contributions now, but distributions are tax-free. If your tax bracket in 2013 is lower, and you can afford it, pay the tax now. That will set you up for tax-free retirement funds later. Just remember, if you convert to a Roth IRA you’ll need to pay all the tax on those tax-deferred contributions you’ve made. So ask your tax adviser to run the numbers before you decide.

4. What about year-end charitable giving?

You already know you can lower your tax bill by making charitable gifts before January. However, if you expect a higher tax bracket next year, the donation will benefit you more in 2014. Consider holding your donation till January.

If you are at least 70 ½ years old , you can donate up to $100,000 directly from your IRA to a charity. This doesn’t give you a charitable deduction on your taxes, but it will allow you to avoid the required minimum distribution, up to $100,000. Note: This tax provision may disappear after 2013 unless Congress acts to renew it.

5. Should you change your benefit plans?

If you have a flexible spending account, now might be a good time to increase your contributions to the max, which is $2,500. Chances are with rising deductibles, co-pays and premiums expected for all of us, you’ll need the financial help of paying for these expenses with pre-tax dollars. Also make full use of your childcare flexible spending account (maximum of $5,000) to save some tax money and evenly spread out the cost of childcare.

A good tax/financial adviser can steer you in the right direction when preparing for 2014. Contact Optima Tax Relief for help with these important matters before it’s too late.

One more thing: as the year ends, fraud ramps up. You may get unwelcome offers from “financial advisers” who promise “guaranteed” “risk free” or “secret” investment deals. If that happens, don’t walk away… run! To ensure you are dealing with a legitimate adviser, use FINRA’s Broker Check.

Photo: Dave Dugdale