Know Your Tax Exemptions & Deductions

The last thing anyone wants is to find out that the IRS is billing them for a couple of grand or that they owe a penalty. As we have heard countless times, it is better to overpay and receive a return than to pay too little and have another bill to worry about. If you are worried about having too many exemptions at the last minute, you are better off overpaying money to the IRS. Otherwise, the penalty will come back at an interest rate of .5% per month of non-payment. This could lead to further problems such as a freeze placed on bank accounts until the IRS receives their money.

Taxes - Keep Your Money

Here are some common ways that you can take too many exemptions.

  • Having more than one person claim a single dependent can lead to major complications for you. If you have a child and are no longer in a relationship with the child’s other parent, ensure that there is communication. Before taking the exemption, make sure that they are not taking the exemption unless they pay more than half of the child’s expenses. Come to a decision beforehand with the child’s other parent. Keep in mind that you can discuss these legal matters with a lawyer or with your local social services if the child lives with you.
  • Medical bills can be added to your deductions unless it is cosmetic surgery, or you are paying medical bills for someone else who is not a dependent. The amount paid must exceed 7.5% of the total income. 
  • Unfortunately, a common tax deduction that may be forgotten is the education tax. The maximum deduction is $4000 as of 2017. The maximum is said to drop as incomes rise so be sure to keep up to date with tax laws regarding education. If you are receiving American Opportunity and Lifetime Learning credits this year, keep up with IRS publication 970 to ensure these statutes do not change. 
  • If you own property in places like Florida and Texas, make sure to check the validity of the Homestead exemption for your community. Let’s say you are claiming another home, you may not be able to accept this homestead exemption. Being divorced means that only one person can receive the exemption. 

Anytime a major life event takes place, reevaluate all major exemptions and deductions. Ensure that you give your tax representative enough time to go through and check all exemptions. Go to someone with plenty of experience who will be thorough and has experience with businesses as well as individuals. They will ensure you are following all the current tax rules and give you a heads up if you need any extra paperwork.

Consider Franek Tax Services for your next tax return. With 30 years of experience and a great reputation with the small business community, Joe Franek has you covered.