Tax Filing Tips You May Not Have Known About
Wednesday, November 27, 2019, 6:00 AM | Leave Comment
When it comes to filing taxes, everyone wants to know as many ways as possible to get a generous tax return.
The truth is, whether you’ve been filing for years or are new to the United States, there are many tips and tricks to keep under your belt to both ensure yourself accuracy in your filing, as well as the max amount of a return you can bring in.
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Report HSA Savings Correctly
An HSA, or health savings account, is an account that offers pre-tax contributions from your paycheck, tax-free growth, and tax-free qualified withdrawals when used for approved medical expenses. You may be familiar with how an HSA works, but you may not be getting the most benefits possible from your HSA if you are not reporting the savings correctly on your tax return.
One of the best things about an HSA is that you don’t lose the money in the account if you don’t use it at the end of the year. It gets rolled over into the next year and continues to earn interest.
To report HSA expenses correctly, you need to make sure that all of your HSA expenses are eligible. If not, you’ll face IRS penalties of 20% on each withdrawal on top of regular income tax. However, it’s important to know that if you’re 65 and older, it doesn’t matter how you used the money in your HSA account because you’ll only pay the income tax on the withdrawal.
HSA eligible expenses include:
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General medical expenses, exams, and hospital services
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Childbirth and breast pumps
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Prescription medication
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Chiropractor services
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Artificial limbs
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X-rays
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Artificial teeth
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Physical therapy
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Birth control pills
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Antacids
After using money from your HSA, it’s imperative that you maintain any and all associated receipts as well as any statements from your doctor, hospital, etc. These documents are important if any questions arise about a specific expense paid for by the HSA.
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Home and Clean Energy Deductions
If you’ve made improvements to your home to both save energy and utilize more clean energy, you may be able to deduct those costs from what you owe on your taxes.
In fact, there is a Residential Renewable Tax Credit that you can take advantage of if you’ve installed any of the following in or on your home:
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Solar panels to generate electricity
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Solar-powered water heaters
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Wind turbines to generate electricity
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Geothermal heat pumps that meet federal Energy Star guidelines
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Fuel cells that rely on a renewable resource to generate electricity
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New doors and windows if they meet Energy Star standards
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Certain insulation products
Just like with your HSA, be sure to save any receipts pertaining to any of these products so that you have all the information you need come tax time, especially if you need to prove that these tax-deductible additions were actually added onto your home.
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Keep Track of Your Side Gig Income
These days, many people have a side gig to bring in extra income. If you are one of them, carefully track how much income your side business brings in annualy, as you’ll most likely have to declare it on your taxes. Specifically, if you make more than $400 per year, expect to include it on your tax form.
However, just like with a regular small business, there are some aspects of your side gig that you can write off on your taxes, including start-up expenses, office supplies, tools & equipment, vehicle expenses, and computer software, so long as these aspects align with proper tax guidelines.
If you choose to register your side gig under an LLC, or limited liability company, your business is separate from you as an individual, at least as far as tax filing goes. Some of the things you can write off as an LLC include any seminars or activities used for professional development, any expenses related to your business property and location, as well as any expenses related to travel and transportation.
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Charitable Donations of Your Time
You probably know that if you donate to a non-profit organization, you can deduct the monetary amount when you do your taxes. However, what if your donation is not tangible because you’re donating your time, not your money?
Unbeknownst to some, you can actually write off out-of-pocket expenses like car mileage used if you traveled to help someone in need.
The trick is to keep excellent records detailing everything you did, exactly where you went, and what you were doing for a specific organization. Most reputable volunteer organizations should have documentation, informational stubs, etc., to give you after your time spent with them in order to use when you file your taxes.
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Be Sure to File Taxes if You’re an Authorized Immigrant
One of the most common mistakes that people new to this country make is not filing their taxes, especially if their employer does not withdraw taxes automatically for them, or they are working as a contractor or freelancer. This is mainly because many immigrants are not used to filing taxes via the methods in the United States, as taxation methods vary around the world. Depending on their country of origin, they may not have been required to file tax returns as we do in the US, so the idea is completely new to them.
The bottom line is that any authorized United States immigrant who worked in the United States needs to file and pay taxes, as expected of all citizens as well. If you are an immigrant, in order to file taxes, you need a social security number or an individual taxpayer identification number (which usually comes when you file for an LLC). In order to get an individual taxpayer identification number, you need to fill out a W-7 form as well as submit documentation to prove your identity and status. It’s also important to note that how you file, or don’t file your taxes, can affect your residency status in the United States and your chances of becoming a U.S. citizen in the future.
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Defaulted Personal Loans to Friends
Perhaps one of the most hidden tax filing tips has to do with money you may have loaned to a friend. If you were never repaid, you can write it off as bad debt, up to $3,000 per tax return.
If you’re owed more than $3,000, you can carry it over to tax returns in future years until you’re actually done deducting the whole amount.
Keep all of these tax tips in mind when you file this year. How your report your HSA savings and how you handle any refinancing on your taxes can greatly impact your refund or how much you have to pay.
Keeping track of charitable donations and any money friends may owe you can also help with your tax return. If you have a side business or an LLC, you also want to be on top of all the available tax write-offs.
As a general rule, always check back on tax rules and available credits because they tend to change from year to year. Nobody wants to get stuck paying more taxes than they have to, after all!
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