Now that the 2015 tax season is in full swing, we thought you might enjoy the following tax tidbits:
1. On August 5, 1861 the U.S. government levied the first income tax to help fund the Civil War. Income over $800 was taxed at a 3% rate. In 1895, the Supreme Court declared income tax unconstitutional. Sorry . . . don’t get your hopes up. In 1913, the 16th amendment was ratified and permanently established income taxation.
2. Do you work from home? There is a simplified method for determining your home office deduction that can reduce your recordkeeping burden. If you meet the requirements to claim the deduction, the simplified method is as easy as multiplying a prescribed rate by the allowable square footage of your office. For more information: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction
3. Your health is very important to the IRS: Remember, that as a part of your tax return this year, you must report certain items related to your health insurance. If you want to know more, the Affordable Care Act contains 906 pages of exciting edicts; feel free to call us and we can help you through it!
4. Deduction or credit, which is better? A credit of course (but not always). Both deductions and credits can help you save on your taxes, but they work in significantly different ways. A deduction decreases your taxable income, which decreases your taxes by a percentage of the amount you’re deducting (the percentage depends on your tax bracket). A credit reduces your taxes dollar-for-dollar. For example, if you are in the 25% tax bracket, a $100 deduction will reduce your taxes by $25, but a $100 credit will reduce your taxes by $100. However, deductions can produce other advantages by lowering your Adjusted Gross Income.
5. Taxes must be complicated…There are more tax preparers in the U.S. than firefighters and police officers combined! The Federal Tax Law started out as 400 pages, but over the years has grown to 73,954 pages (as of 2013). Don’t worry; our highly trained tax professionals are here to help you.
6. Gambling winnings: Whether you’ve been spending some time at one of our desert casinos or playing Texas Hold ‘Em online, don’t forget to keep an accurate account of your winnings (or losses). Gambling winnings are fully taxable and you must include them in your income on Form 1040. Gambling losses are deductible only if you itemize your deductions and only up to the amount of your winnings.
7. Benjamin Franklin, on November 13, 1789, wrote the following to Jean-Baptiste Leroy: “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” (Now you know where THAT came from!)
8. What is the gift tax? It is a tax assessed on the value of property that you give (meaning you did not receive full consideration in return) to someone other than your spouse. (This tax on value is what makes gift tax different from income tax.) The donor is generally responsible for paying this tax. However, there are a few “exclusions” including the annual exclusion of $14,000 you can give one person for 2014. This does not necessarily mean you will have gift tax if you give more than $14,000. For more information: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes
9. Is quitting smoking a deductible medical expense? Yes! Smoking-cessation programs, prescribed or not, and prescription drugs to relieve symptoms of nicotine withdrawal are deductible medical expenses on your schedule A. Over-the-counter gums and patches are not deductible though.
10. Refunds: Nearly eight out of ten U.S. tax filers get a refund. The average refund is about $2,800. What will you do with your refund? Last year, the two most common things people used their refunds for were paying bills and making big-ticket purchases, like buying a car or paying for a vacation. A small percentage used their refund to pay down a mortgage or other home loan. Absent from the list was using your refund to boost savings.
As a general disclaimer, the information provided above is very general and broad in nature, is not represented as complete, and may not apply to taxpayers’ individual situations. We advise all taxpayers to consult a professional tax advisor regarding their own specific tax needs.