With 2010 quickly coming to a close, Jackson Hewitt Tax Service® encourages taxpayers to review the major life events that took place over the past twelve months with an eye toward possible tax implications. Big life changes often mean big tax changes for consumers, some of which can lead to extra dollars in their pockets when filing a return.
“From a new child to a new home to a new job, there are tax deductions and credits tied to many major life changes,” said Mark Steber, chief tax officer, Jackson Hewitt Tax Service Inc. “Knowing what tax benefits are available, and bringing any necessary documentation to your tax preparer is a smart way to make the most of these life changes.”
Steber notes several common life changes that can mean tax benefits:
- Having or adopting a child: Claiming a son or daughter as a dependent may significantly reduce a federal tax liability. You may be entitled to a $3,650 exemption per dependent as well as a Child Tax Credit of up to $1,000 per qualifying child. Those who adopt a child and pay adoption expenses may be able to claim a refundable credit for qualified expenses of up to $13,170 per child.
- Continuing an education: (for yourself, spouse, or dependent child): Up to $2,500 of student loan interest paid may be claimed as a direct deduction against your income. The loan must be for tuition, fees, books, and other qualified expenses for a student enrolled half-time or more.
- Making energy efficient improvements to your home: The Nonbusiness Energy Property Credit is a tax credit for making your home more energy efficient, such as adding insulation, installing energy-efficient exterior windows or adding energy-efficient heating and air conditioning systems. Up to 30 percent of the cost of all qualifying improvements may be available, for a total two year credit limit of $1,500 (2009 and 2010 combined).
- Working independently or self-employed: Taxpayers who are newly working as an independent contractor or self-employed can directly deduct all expenses for their business against their income. Expenses such as advertising, supplies, office supplies, equipment, phones, and costs of owning and driving a vehicle are all allowed deductions that can reduce your total taxes.
- Caring for an adult parent financially: An aging parent may qualify as a dependent if the taxpayer is responsible for at least 50 percent of the parent’s expenses, such as for food, medical care and lodging. Expenses for assisted living facilities or nursing homes can also count toward parental support if the taxpayer paid those costs. Taxpayers may also be able to deduct any medical expenses being paid. Finally, if they are paying for senior care, they may be eligible for a credit of up to $2,100. However, according to Steber, “Often siblings will share in the support of the aging parent and are surprised to learn that only one of them can claim the parent as a dependent.”
“In addition to this group of life changes, there are many more that can mean tax benefits, or in some cases, tax liabilities, so working with a knowledgeable tax preparer is a good way for taxpayers to ensure that they review all of the things that impact a tax return, including many common life events and expenses,” noted Steber. “Not all online options can fully assist a taxpayers with these life changes, hence the increased importance of experienced tax preparers.”
Tagged with: Child Tax Credit • Efficient energy use • Expense • Internal Revenue Service • Jackson Hewitt® Tax Service- Major Life Events Can Pay Big Dividends • Tax • Tax credit • Tax deduction • Tax preparation
Filed under: Business