Tax Tips They Don't Want You to Know About
There are tax-relief solutions that are available directly from the IRS, but unless you are familiar with legal-ese, it can be difficult to decipher them. It is not always necessary to elicit the assistance of an accountant or tax attorney when dealing with the IRS. There are a few things that you can do yourself and save thousands of dollars at tax time.
American Opportunity Tax Credit
If your individual income is under $80,000, or $160,000 for couples filing jointly, and you are the parent of a college student, you can claim all of the first $2,000 paid for tuition. If you paid out a total of $4,000, you will also be able to claim one-quarter of the next $2,000 for a total tax credit of $2,500. This deduction includes fees for books, course materials and other related expenses.
Gift Taxes
You can avoid paying gift taxes on property that you give to, or share with, family and friends. The IRS has established a $13,000 cap on what they referred to as an "exclusion amount." Gifts that you give to parents or children or friends in excess of the exclusion amount may be subject to taxes, but gifts to a spouse in any amount are not. You are required to file an IRS form 709 when you file your taxes in April. You can pay for someone's medical bills or for their school tuition. These payments are not considered gifts and are not subject to taxation, but a form 709 must be filed along with your taxes if this is the case.
The Unified Credit option can help you avoid paying taxes on larger gifts that exceed the $13,000 exclusion amount. The Unified credit amount increased in 2009 to $1,455,800 and kicks in after the $13,000 exclusions have been exhausted.
Find complete information on gift taxes and how they work at: http://www.irs.gov/pub/irs-pdf/p950.pdf.
Home Business Deduction
Establishing a home-based business can provide tax relief in the thousands. To qualify for this deduction, you must meet certain requirements. This expense is applied to the place where you deal with customers or to a separate structure where your business is conducted. This deduction must be reported on form 8829. As a business owner, you are only liable for the taxes on what remains after expenses. It is possible to write off rent, utilities, meals, furniture, phone bills, cleaning services and meals.
Learn more about home business deductions at http://www.irs.gov/pub/irs-pdf/p587.pdf.
Cancelled debts, Foreclosures, Repossessions and Abandonments
Surprise! You owe more taxes than you thought. Bill collectors are now making use of an option that most people don't know about to collect outstanding balances on credit cards, auto repossessions, payday loans or foreclosures. These could be debts you may have thought were forgiven or that you made arrangements to pay off in a lesser amount.
IRS Form 1099-C gives creditors the ability to report, as income, any outstanding balances, even the portion you thought had been forgiven. This is legitimate and required for amounts in excess of $4,000. What's more, you will be obligated to pay taxes on the amounts reported which could include more than just the amount forgiven but also court costs and attorney fees.
You can dispute this if you can prove that at the time the debt was forgiven you were insolvent. Form 982 is the IRS's insolvency form. The IRS considers a person insolvent if you had no income or if your assets are less than the fair market value of your debts at the time the debt was forgiven.
In the case of foreclosure, the Mortgage Forgiveness Debt Relief Act of 2007 may be the answer. Find out if you qualify for this option at: http://www.irs.gov/pub/irs-pdf/p4681.pdf
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