Does Your Child Need to File an Income Tax Return?

As parents, we encourage our children to work so they can learn important values about work and independence. At what point, if at all, do children need to file an income tax return for the money they earn?  The Blue Springs income tax preparation office of Alliance Financial & Income Tax is here to assist in determine the best way to file.

The IRS does not exempt anyone from the requirement to file a tax return based on age, even if your child is declared as a dependent on your tax return.¹

Your dependent children must file a tax return when they earn above a certain amount of income.

Dependent children with earned income in excess of $6,300 must file an income tax return.² This threshold may change in 2017 and years after, so please consult a professional with tax expertise regarding your individual situation.

Even if your child earns less than the threshold amount, filing a tax return may be worthwhile if your child is eligible for a tax refund. The standard deduction for a child is different from that of an adult: It is the greater of $1,050 or earned income plus $350, with the maximum equal to the regular standard deduction.³

The rules change for unearned income, such as interest and dividend payments. When the annual total of unearned income exceeds $1,050, then a return must be filed for your child. If your child’s unearned income only consists of interest and dividends, then you can elect to include it on your own return and combine it with your income, though it may result in higher income tax to you.

If you decide to prepare a separate return for your child, the same reduced standard deduction rules detailed above will apply.

1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties.
2. IRS.gov, for tax year 2016
3. IRS.gov, for tax year 2016

Year-end strategies, with tax reform in mind

We're in that annual holiday lull during which most of the country takes things real easy, tries to recover from all of the parties, and gears up for a new beginning.

For your Blue Springs income tax professionals, however ... well, let's just say that we don't often get a "normal" holiday season, and this year is even more intense as we process all of the changes coming down the pike for next year. There was hope by many that this tax reform bill would simplify things for many taxpayers, but I am sorry to say that is not actually the case.

(I do want to warn you in advance that this email has a lot of information, and a lot of tax-savings strategies in it. It is a bit long. But time is short before the end of 2017, and some of these strategies can save you a bunch of money if you are able to act quickly.)

Back to the tax reform bill ... I saw an article the other day in a publication for tax accountants, and they referred to the recently-passed bill as "The Accountants' Full Employment Act".

Yes, there's a lot of talk about how taxes have gone down for about 80% of the population, and we here at Alliance Financial & Income Tax, LLC are obviously pleased about that on behalf of our clients.

But "simplified" tax preparation is not something that was accomplished by this bill, especially for business owners -- but really, for a majority of taxpayers. Yes, the standard deduction is much higher, and that will make sense for some of our clients to take.

However, as I've alluded to previously, there will be an entirely different kind of decision matrix for financial decisions. Some will be simpler, others will be more complex, but regardless, we're on the case for you.

The IRS has yet to issue actual guidance for tax professionals on these changes, and there will be many "technical corrections" still to come (the bill was passed rather quickly), but again, we DO know some things that will save you some money if you take some action during this normally-slower week.

I've put together some big ideas that will help. The last one, in particular, is one that might merit your attention. All of these are, of course, a personal decision -- and we're here for you regardless.

Shoot me an email or call us ((816) 220-2001) if you need help.

Mike Mead's

"Real World" Personal Strategy Note

2017 Year-End Tax Strategies for Alliance Financial & Income Tax, LLC Clients With Tax Reform In Mind

"Life is the art of drawing without an eraser." -John W. Gardner

Year-end can be a snoozer for some taxpayers, and I don't always "push" very hard on certain things with my clients.

But with a radically different -- but sadly, not simplified -- tax code for 2018, it would behoove you to sit down and make a little bit more of an effort ahead of this particular year's end than perhaps you have in previous years -- so that you can potentially save even more.

None of these require a lot of time or effort, but they are different than in years past.

Here we go:

1) Consider donating more aggressively to charity.

The ability to deduct for charitable contributions isn't going away. But for some taxpayers who end up taking the increased standard deduction (which nearly doubles, from $6,350 in 2017 to $12,000 in 2018 for singles and $12,700 in 2017 to $24,000 for couples in 2018), giving to charity NOW will provide a much bigger bang for your buck.

And further (and speaking of bang for your buck), because of the new, lower rates across most tax brackets, your contributions in 2017 are "worth more" in tax deduction power than they will be in future years. If your tax bracket falls from 28 percent to 24 percent, for example, the value of a $100 charitable deduction drops from $28 to $24.

One more idea on this topic: This is a great year (2017) to give away appreciated stock or securities.

This has two benefits: a deduction for the fair market value of the security versus getting a deduction for the lower cost basis in 2018 of up to 30 percent of adjusted gross income (or 20 percent if contributed to a private foundation); plus the capital gain on the appreciated security is not taxed.

2) Consider making an additional mortgage payment.

Again, this is especially true if we think we might not itemize your deductions for your 2018 tax return. You might not get the benefit from deducting that interest payment, and so, if you're able to, this will help your 2017 tax bill and not do anything to help you in 2018 taxes if you take the standard deduction.

Plus, there is a larger interest deduction in 2017 even if we *do* plan to itemize under the new bill.

One potential pitfall: check with your lender to make sure this payment goes to interest as well as principal. Sometimes, additional payments go straight to paying down the principal -- which is a great practice for saving long term on your mortgage, but which doesn't help you with your taxes.

3) Defer income until 2018 begins.

I've written previously about this, so I'll keep it short: Employees often cannot control the timing of their paycheck, but it never hurts to ask. Lower marginal rates across the board for 2018 means that where it's possible to shift income into 2018, do so.

4) Consider pre-paying or making a deposit towards OUR fees.

Anything that you invest with us for handling all of your tax preparation needs, unfortunately, is no longer tax deductible in 2018. But you can pre-pay now and still receive that value for 2017 taxes. Even if the actual fees for your return end up being different than what you actually pay, anything you pay in 2017 will be deductible on this year's taxes (even if you are paying for services you don't receive until 2018 or beyond).

So you get a real-life discount (in terms of tax deduction opportunities) if you choose to invest in our services before year-end. Send me an email, if you are interested in this, and we will follow-up with you as needed. And if for some reason your fees end up being less than what you pay, we'd be glad to refund you the overage or hold it as a credit for future services (and in the case of maintaining the credit with us, you will keep the deduction!).

I hope this helps. Again, this is a bit of a longer email, especially for the "last-minute tax tips" subject. And there are potentially other, less common moves that might make sense for certain of our clients.

Now you understand why our holidays are a little busier than for some other professionals!

We're in your corner,

Mike Mead, EA, CTC

Alliance Financial & Income Tax

807 NW Vesper Street

Blue Springs, MO. 64015

P - 816-220-2001 x201

F - 816-220-2012

www.afitonline.com

Year-End Charity Donations May Cut Tax Bills

Those looking to maximize their tax savings before the end of the year may wish to consider charitable giving. Giving money or goods to a tax-exempt charity before Dec. 31 can usually be deducted on that year’s federal income tax return. Keep in mind the following:

Here is some important things to keep in mind, provided by your Blue Springs Income Tax consultants at Alliance Financial & Income Tax.

Only Donations to Eligible Organizations are Tax-Deductible.

The IRS Select Check tool is a searchable online database that lists most eligible charitable organizations. Churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in this database.

Itemize to Claim Charitable Donations

Charitable deductions are not available to individuals who choose the standard deduction. Only taxpayers who itemize using Form 1040 Schedule A can claim deductions for charitable contributions.

Get Proof of Monetary Donations

A bank record or a written statement from the charity is needed to prove the amount and date of any donation of money. Money donations can include various forms apart from cash such as check, electronic funds transfer, credit card and payroll deduction. Taxpayers using payroll deductions should retain a pay stub, a Form W-2 wage statement or other proof showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Donating Property

For donations of clothing and other household items the deduction amount is normally limited to the item’s fair market value. Clothing and household items must be in good or better condition to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with their tax return.

Donors must get a written acknowledgement from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed. Special rules apply to cars, boats and other types of property donations.

Note Any Benefit in Return

Donors who get something in return for their donation may have to reduce their deduction. Benefits can include merchandise, meals, tickets to an event or other goods and services. A donation acknowledgment must state whether the organization provided any goods or services in exchange for the gift along with a description and estimated value of those goods or services.

Older IRA Owners Have a Different Way to Give

IRA owners age 70½ or older can transfer up to $100,000 per year to an eligible charity tax-free. The transfer can count as their required minimum distribution for the year. Funds must be transferred directly by the IRA trustee to the eligible charity.

Good Records

The type of records a taxpayer needs to keep depends on the amount and type of the donation. An additional reporting form is required for many property donations and an appraisal is often required for larger donations of property.

Have questions?   Do not hesitate to contact your Blue Springs income tax preparation office today at 816-220-2001.

Recap of 2017 Tax Provisions for Individuals

Blue Springs & Grain Valley Income Tax Preparation

Many of the tax changes affecting individuals and businesses for 2017 were related to the Protecting Americans from Tax Hikes Act of 2015 (PATH) that modified or made permanent numerous tax breaks (the so-called "tax extenders"). To further complicate matters, some provisions were only extended through 2016 and are set to expire at the end of this year while others were extended through 2019. With that in mind, here's what individuals and families need to know about tax provisions for 2017 from your Blue Springs Tax Preparation office.

Personal Exemptions 
The personal and dependent exemption for tax year 2017 is $4,050.

Standard Deductions
The standard deduction for married couples filing a joint return in 2017 is $12,700. For singles and married individuals filing separately, it is $6,350, and for heads of household the deduction is $9,350.

The additional standard deduction for blind people and senior citizens in 2017 is $1,250 for married individuals and $1,550 for singles and heads of household.

Income Tax Rates 
In 2017 the top tax rate of 39.6 percent affects individuals whose income exceeds $418,400 ($470,700 for married taxpayers filing a joint return). Marginal tax rates for 2017--10, 15, 25, 28, 33 and 35 percent--remain the same as in prior years.

Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket is $75,900 for a married couple filing a joint return.

Estate and Gift Taxes 
In 2017 there is an exemption of $5.49 million per individual for estate, gift and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $14,000.

Alternative Minimum Tax (AMT) 
AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, non-refundable personal credits can now be used against the AMT.

For 2017, exemption amounts are $54,300 for single and head of household filers, $84,500 for married people filing jointly and for qualifying widows or widowers, and $42,250 for married people filing separately.

Marriage Penalty Relief 
The basic standard deduction for a married couple filing jointly in 2017 is $12,700.

Pease and PEP (Personal Exemption Phaseout) 
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA (indexed for inflation) and affect taxpayers with income at or above $261,500 for single filers and $313,800 for married filing jointly in tax year 2017.

Flexible Spending Accounts (FSA) 
Flexible Spending Accounts (FSAs) are limited to $2,600 per year in 2017 (up from $2,550 in 2016) and apply only to salary reduction contributions under a health FSA. The term "taxable year" as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,600 limit for the subsequent plan year.

Further, employers may allow people to carry over into the next calendar year up to $500 in their accounts, but aren't required to do so.

Long Term Capital Gains 
In 2017 taxpayers in the lower tax brackets (10 and 15 percent) pay zero percent on long-term capital gains. For taxpayers in the middle four tax brackets the rate is 15 percent and for taxpayers whose income is at or above $418,400 ($470,700 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Individuals - Tax Credits

Adoption Credit 
In 2017 a nonrefundable (i.e. only those with a lax liability will benefit) credit of up to $13,570 is available for qualified adoption expenses for each eligible child.

Child and Dependent Care Credit 
The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Child Tax Credit 
For tax year 2017, the child tax credit is $1,000. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.

Earned Income Tax Credit (EITC)
For tax year 2017, the maximum earned income tax credit (EITC) for low and moderate income workers and working families increased to $6,318 (up from $6,269 in 2016). The maximum income limit for the EITC increased to $53,930 (up from $53,505 in 2016) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Individuals - Education Expenses

Coverdell Education Savings Account 
You can contribute up to $2,000 a year to Coverdell savings accounts in 2017. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.

American Opportunity Tax Credit
For 2017, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.

Employer-Provided Educational Assistance 
In 2017, as an employee, you can exclude up to $5,250 of qualifying post-secondary and graduate education expenses that are reimbursed by your employer.

Lifetime Learning Credit 
A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2017, the modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $112,000 for joint filers and $56,000 for singles and heads of household.

Student Loan Interest 
In 2017 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $135,000 (married filing jointly). The deduction is phased out at higher income levels. In addition, the deduction is claimed as an adjustment to income, so you do not need to itemize your deductions.

Individuals - Retirement

Contribution Limits
For 2017, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is $18,000 (same as 2016). For persons age 50 or older in 2017, the limit is $24,000 ($6,000 catch-up contribution). Contribution limits for SIMPLE plans remain at $12,500 (same as 2016) for persons under age 50 and $15,500 for anyone age 50 or older in 2017. The maximum compensation used to determine contributions increased from $265,000 to $270,000.

Saver's Credit 
In 2017, the adjusted gross income limit for the saver's credit (also known as the retirement savings contributions credit) for low-and-moderate-income workers is $62,000 for married couples filing jointly, $46,500 for heads of household, and $31,000 for married individuals filing separately and for singles.

Please call Alliance Financial & Income Tax at 816-220-2001 if you need help understanding which deductions and tax credits you are entitled to.

Would You Like To Keep More of Your Money?

Blue Springs & Grain Valley Income Tax Services Office

Your tax preparation needs are as individual as you are.  Alliance Financial & Income Tax takes an active approach to our tax planning and tax preparation services, giving you the personalized guidance you need.  Today's tax laws are so complicated that filing taxes, no matter how simple, can quickly become confusing.

10 million tax payers missed out on a chance to receive a bigger refund last year simply because they neglected to fill out one line on their tax return.  Will you miss a similar opportunity this year?

Today's tax laws are increasingly complicated and the rules for deductions and credits change year by year.  Are you aware of all the deductions and credits that might be available to you this year, even on the most basic of tax returns?  Perhaps you feel secure in your do-it-yourself tax preparation software, but lets face it...There is not substitute for an experienced Enrolled Agent who can answer your questions and ask you the questions that might be key to saving you hundreds or even thousands in tax dollars. 

Tax Preparation in Blue Springs and Surrounding Area

Our Tax Preparation Services Include:

• Assurance that your return has been checked and double-checked for mathematical accuracy and errors that are commonly flagged by the IRS, resulting in fewer chances for contact by the IRS.
• Tips for better managing your payroll withholding so that you can have the advantage of greater income all year long, rather than loaning that money to the government and waiting for it to come back in the form of your yearly tax return.
• A list of common deductions that may benefit you in the coming year, and tips for limiting your future tax liability.
• Electronic filing for a quicker refund.

We  can help you get your paperwork organized with our tax preparation checklist of materials needed for individuals and small businesses.

If  you own a small business and haven't kept up your bookkeeping, don't worry; we can help.  We'll prepare your small business bookkeeping for the year, prepare your business tax return, as well as your personal income tax return.  Then we'll help you set up an easy system that allows you keep your books in great shape for next year.

If you'd like to receive more information about our Blue Springs Tax Preparation Services, please contact us today. If you are ready to schedule a time for us to visit you may schedule a time online that is convenient for you.  

 

Related Links

Income Tax Organizer

Individual Tax Preparation Checklist

Business Tax Preparation Checklist

Tax Preparation Checklist

Blue Springs & Grain Valley Income Tax Preparation Checklist

Personal Tax Preparation Checklist

Below is the information you will need to gather for the preparation of your personal tax returns.

Our tax organizer may provide additional assistance.

Do not hesitate to contact us if you have any questions.

                                        (Click here for Printable Checklist)

Personal Information

• Your social security number
• Your spouse's full name and social security number
• Amount of any alimony paid and ex-spouse's social security number

Other people who may belong on your return

• Dates of birth and social security numbers
• Childcare records (including the provider's ID number) if applicable
• Approximate income of other adults in your home (not spouse, if you're filing jointly)
• Form 8332, copies of your divorce decree, or other documents showing that your ex-spouse is releasing their right to claim a child to you

Education Payments

• Bills from the educational institution or anything else that itemizes what you paid or received loans for versus what was covered by scholarship or other financial aid
• Forms 1098-T and 1098-E, if you received them
• Scholarships and fellowships

Employee Information

• Forms W-2

Self-Employment Information

• Forms 1099-MISC, Schedules K-1, income records to verify amounts not reported on 1099s.
• Records of all expenses — check registers or credit card statements, and receipts
• Business-use asset information (cost, date placed in service, etc.) for depreciation
• Office in home information, if applicable

Vehicle Information

• Total miles driven for the year (or beginning/ending odometer readings)
• Total business miles driven for the year (other than commuting)
• Amount of parking and tolls paid
• If you want to claim actual expenses, receipts or totals for gas, oil, car washes, licenses, personal property tax, lease or interest expense, etc.

Rental Income

• Records of income and expenses
• Rental asset information (cost, date placed in service, etc.) for depreciation

Retirement Income

• Pension/IRA/annuity income (1099-R)
• Social security/RRB income (1099-SSA, RRB-1099)

Savings and Investments

• Interest, dividend income (1099-INT, 1099-OID, 1099-DIV)
• Income from sales of stock or other property (1099-B, 1099-S)Dates of acquisition and records of your cost or other basis in property you sold

Other Income

• Unemployment, state tax refund (1099-G)
• Gambling income (W-2G or records showing income, as well as expense records)
• Amount of any alimony received and ex-spouse's name
• Health care reimbursements (1099-SA or 1099-LTC)
• Jury duty records
• Hobby income and expenses
• Prizes and awards
• Other 1099

Itemizing Deductions

• Forms 1098 or other mortgage statements
• Amount of state/local income tax paid (other than wage withholding), or amount of state and local sales tax paid
• Real estate and personal property tax records  (Click Here for Jackson County Residence) 
• Invoice showing amount of vehicle sales tax paid
• HUD statement showing closing date of home purchase
• Cash amounts donated to houses of worship, schools, other charitable organizations
• Records of non-cash charitable donations
• Amounts paid for healthcare insurance and to doctors, dentists, hospitals
• Amounts of miles driven for charitable or medical purposes
• Expenses related to your investments
• Amount paid for preparation of your last years tax return
• Employment-related expenses (dues, publications, tools, uniform cost and cleaning, travel)
• Job-hunting expenses

IRA Information

• Amount contributed 
• Traditional IRA basis
• Value of IRAs on Dec. 31st (Please provide year end statements)

If you were affected by a federally declared disaster

• City/county you lived/worked/had property in
• Records to support property losses (appraisal, clean up costs, etc.)
• Records of rebuilding/repair costs
• Insurance reimbursements/claims to be paid
• FEMA assistance information
• Check FEMA site to see if my county qualifies for individual assistance