Tax Break:  Buy parent's home, rent it back to them

Say your aging parents live in a home that has appreciated in value, but they are no longer reaping any homeowner tax breaks.With one stroke of the pen, both you and your parents can win.  How? Buy your parent's home for a fair price, and rent it back to them at a fair rental. Your parents have cash in their pockets and can put their money in a safer investment than the real estate market.  You get to pick up some generous new tax deductions.  Eventually, your parents may not be able to live in the house..  Then, you can sell it, rent it to someone else or move in.  If you move in and make it your principal residence for at least two years, you can sell and shelter $250,000 or $500,000 worth of capital gains.  To find out more information about this tax tip, please call our office and ask for Dave or Barb.   

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Include a Few Tax Items in Your Summer Wedding Checklist

If you are preparing for summer nuptials, make sure you do some tax planning as well.  A few steps taken now can make tax time easier next year.  Here are some tips to minimize tax issues that may arise from your marriage:

• Change of name.  All the names and the Social security numbers on your tax return must match your Social Security records.
• Change tax withholding.  When you get married, you should consider a change of income tax withholding.   Some married people find that they do not have enough tax withheld at the married rate, resulting in more tax due on April 15.
• Changes in circumstances.  If you receive advance payments of the premium tax credit you should report your marriage to the Health Insurance Marketplace.  Other changes that you should report include a change in family size.  Reporting these changes will help you avoid getting a smaller refund or owing money that you did not expect to owe on your federal return.
• Change of address.  Let the IRS know you moved by filing Form 8822, and also change your address at the U.S. Postal Service.
• Change in filing status.    If you are married as of December 31, that is your marital status for the entire year for tax purposes.  You and your spouse can choose to file the federal return jointly or separately each year.  It is a good idea to figure the tax both ways so you can choose the status that results in the least tax.

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Avoid Surprises at Tax Time

Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return

• Adjust your withholding.  If you’re an employee and you think that your tax withholding will fall short of your total 2014 tax liability, you may be able to avoid an unexpected tax bill by increasing your withholding. If you are having too much tax withheld, you may get a larger refund than you expect. In either case, you can complete a new Form W-4, Employee's Withholding Allowance Certificate and give it to your employer. Enter the added amount you want withheld from each paycheck until the end of the year on Line 6 of the W-4 form. You usually can have less tax withheld by increasing your withholding allowances on line 5. Use the IRS Withholding Calculator tool on IRS.gov to help you fill out the form

.• Report changes in circumstances.  If you purchase health insurance coverage through the Health Insurance Marketplace, you may receive advance payments of the premium tax credit in 2014. It is important that you report changes in circumstances to your Marketplace so you get the proper type and amount of premium assistance. Some of the changes that you should report include changes in your income, employment, or family size. Advance credit payments help you pay for the insurance you buy through the Marketplace. Reporting changes will help you avoid getting too much or too little premium assistance in advance

.• Change taxes with life events.  You may need to change the taxes you pay when certain life events take place. A change in your marital status or the birth of a child can change the amount of taxes you owe. When they happen you can submit a new Form W–4 at work or change your estimated tax payment.

• Be accurate on your W-4.  When you start a new job you fill out a Form W-4. It’s important for you to accurately complete the form. For example, special rules apply if you work two jobs or you claim tax credits on your tax return. Your employer will use the form to figure the amount of federal income tax to withhold from your pay.

• Pay estimated tax if required.  If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay the tax four times a year. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax.

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Deadline to Apply for Pa Property Tax/Rent Rebate Program Extended until December 31

The rebate program benefits eligible Pennsylvanians age 65 and older; widows and widowers age 50 and older; and people with disabilities age 18 and older. The income limit is $35,000 a year for homeowners and $15,000 annually for renters, and half of Social Security income is excluded.

The maximum standard rebate is $650, but supplemental rebates for qualifying homeowners can boost rebates to $975. The Revenue Department automatically calculates supplemental rebates for qualifying homeowners.

The deadline to apply for the rebate program was extended to Dec. 31; rebates will continue to be distributed as claims are approved through the rest of the year.

Applicants may obtain Property Tax/Rent Rebate claim forms (PA-1000) and related information online atwww.revenue.state.pa.us or by calling, toll-free, 1-888-222-9190.

Claimants who already applied for rebates may check the status of claims online at www.revenue.state.pa.us or by calling, toll-free, 1-888-PATAXES.

The Property Tax/Rent Rebate Program is one of five programs supported by the Pennsylvania Lottery.  Since the program's 1971 inception, older and disabled adults have received more than $5.6 billion in property tax and rent relief.  The expanded portion of the rebate program is paid for with revenue from slots gaming

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Tips for Taxpayers about Identity Theft and Tax Returns

Here are some tips to protect you from becoming a victim, and steps to take if you think someone may have filed a tax return using your name

• Don't carry your Social Security card or any documents that include your Social Security number(SSN)
• Don't give a business your SSN just because they ask.  Give it only when required
• Protect your financial information
• Check your credit report every 12 months
• Secure personal information in your home
• Protect your personal computers by using firewalls and anti-span/virus software, updating security patches and changing passwords for internet accounts
• Don't give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with

Be alert to possible identity theft if you receive a notice from the IRS or learn from your tax professional that

• More than one tax return for you was filed
• You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return
• IRS records indicate you received more wages than you actually earned or
• Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change

If you receive a notice from the IRS and you suspect your identity has been used fraudulently, contact your tax professional immediately.

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Six Tips for Students with a Summer Job

School’s out and many students now have a summer job. Some students may not realize they have to pay taxes on their summer income.  Here are the six things the IRS wants everyone to know about income earned while working a summer job.

1. All employees fill out a W-4, Employee’s Withholding Allowance Certificate,  when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs you will want to make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on IRS.gov.
2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.
3. Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.
4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:

• You are in the business of delivering newspapers.
• All your pay for these services directly relates to sales rather than to the number of hours worked.
• You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.

Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax. 

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Summertime Child Care Expenses May Qualify for a Tax Credit 

Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

1. The cost of day camp may count as an expense towards the child and dependent care credit.
2. Expenses for overnight camps do not qualify.
3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.