Retirement Savings Contributions

Taxpayers who contribute to a retirement plan, like a 401(k) or an IRA, may be able to claim the Saver’s Credit. This credit can help a person save for retirement and reduce taxes at the same time.

Here are some key facts about the Retirement Savings Contributions Credit:

Nonrefundable Credit. The maximum contribution is $2,000 per person. Those filing a joint return can also contribute $2,000 for the spouse. However, the credit cannot be more than the amount of tax that a taxpayer would otherwise pay in taxes. This credit will not change the amount of refundable tax credits.

Income Limits. Taxpayers may be able to claim the credit depending on their filing status and the amount of their annual income. They may be eligible for the credit on their 2016 tax return if they are:
Married filing jointly with income up to $61,500
Head of household with income up to $46,125
Married filing separately or a single taxpayer with income up to $30,750
Other Rules. Other rules that apply to the credit include:
Taxpayers must be at least 18 years of age.
They can’t have been a full-time student in 2016.
No other person can claim them as a dependent on their tax return.
Contribution Date. A taxpayer must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, the taxpayer may contribute to an IRA by the due date of their tax return and still have it count for 2016. The due date for most people is April 18, 2017.
Interactive Tax Assistant Tool. The ITA tool is a tax law resource that asks taxpayers a series of questions and provides a response based on the answers. Taxpayers can use Do I Qualify for the Retirement Savings Contributions Credit? to determine if they qualify to claim the Saver’s Credit.
Form 8880. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.
Free File. Any taxpayer who can claim the credit may prepare and e-file their tax returns for free using IRS Free File. The tax software will do the math and complete the right forms. Free File is available only through the IRS.gov website.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Basic Tax Tips for the Sharing Economy

If taxpayers use one of the many online platforms to rent a spare bedroom, provide car rides or a number of other goods or services, they may be involved in the sharing economy. The IRS now offers a Sharing Economy Tax Center. This site helps taxpayers find the resources they need to help them meet their tax obligations.

Here are a few key points on the sharing economy:

Taxes. Sharing economy activity is generally taxable. It does not matter whether it is only part time or a sideline business, if payments are in cash or if an information return like a Form 1099 or Form W2 is issued. The activity is taxable.
Deductions. There are some simplified options available for deducting many business expenses for those who qualify. For example, a taxpayer who uses his or her car for business often qualifies to claim the standard mileage rate, which was 54 cents per mile for 2016.
Rentals. If a taxpayer rents out his home, apartment or other dwelling but also lives in it during the year, special rules generally apply. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxpayers can use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.
Estimated Payments. The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Use Form 1040-ES to figure these payments.
Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Or use the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). 98005
Withholding. Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. File Form W-4 with the employer to request additional withholding. Use the Withholding Calculator on IRS.gov.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999.