How to DIY Your Taxes — and Not Miss a Single Deduction

Tips on choosing tax preparation software to help get all the homeowner benefits.

Ready or not, the tax man’s coming. Filing your taxes yourself may not be your idea of a fun night at home, but even so, it doesn’t really have to be that bad. Yes, even if you own a home. Even if you itemize your deductions. Even if you’re scared of making a mistake.

We turned to the tax pros and nailed down their top tips to make DIY tax filing as easy and painless as possible — as well as how to ensure you don’t miss any possible deductions. Here’s what they said:

Pick the Right Software

Unless you qualify for a free version (more about this below), software prices are all over the place. Still, you get what you pay for. TurboTax is pricey at almost $60 for the Deluxe version, but both our tax experts agree: If you’re going the DIY route, it’s their favorite option.

“It’s user-friendly,” says Cathy Derus, founder of Brightwater Accounting, who, despite being a CPA, admits she’s used the program herself in the past. “It offers an online questionnaire. Then, it walks you through exactly what you need to do.” That questionnaire does a good job of helping you identify possible deductions.

But it’s not fail-safe, she added. It’s only as good as the information you feed into it.

To really make sure you’re aware of all possible deductions, get a copy of Form 1040, Schedule A, (and Schedule C if you’re a sole proprietor for your own business), says Derus. Then, “scan the forms and take note of any items you think you might be eligible to take.”

If you’re a homeowner, here are some examples of deductions you can take:

Mortgage interest
Property taxes
Some costs of buying a new home
Some costs of selling a home
For a full list of your possible homeowner deductions, go here.

Free Software Can Be Ok, Too

If your adjusted gross income is below a certain threshold — typically $62,000 — you may qualify to use one of about a dozen free software options. TurboTax has a free option, but its income threshold is lower at $31,000. H&R Block, Jackson Hewitt, and TaxACT also have free versions.

Some companies also impose other restrictions, such as age and state of residence, to qualify for a free version. That’s because for some firms, the free offering is a way to find clients who might be willing to pay for other services.

Watch for extra costs:Some companies will file your federal return for free, but then charge you for the state return, to e-file, or ask questions of a live person.

Filing for an Extension Can Be a Smart Thing to Do

If you find yourself butting up against the tax filing deadline, you can always request an extension, “so you’re not stressed out,” says Derus.

Most people don’t fully understand how extensions work, and often make mistakes that cost a bundle. Here’s what you need to know:

How to file a tax extension:

File an extension anytime before or on April 15. You’ll avoid the late filing penalty, which is a whopping 5% of your outstanding balance, due for every month you’ve failed to file.
If you owe money, pay as much as you can by April 15 to avoid the late payment penalty of 0.05% interest. (A whole lot less than the late filing penalty, though!)
Make arrangements to complete your tax filing by the October 15 deadline to avoid adding extra interest payments.
Get the Benefits of E-Filing

You’ve probably already been e-filing your taxes, but are you aware of the benefits?

Why it’s better to e-file:

24 hours after you e-file, you can start checking on your return via the IRS’s “Where’s My Refund” online tool or IRS2Go app.
You’ll get any refund due to you faster.
You’re also more likely to know if you filed your forms correctly, avoiding a scary encounter with the tax man. Because if you e-file, you’ve got to use software. And these programs “run a check for questions that need to be answered, numbers that don’t add up, and missing Social Security numbers,” says Tai Stewart, accountant and owner of Saidia Financial Solutions in Houston. Those mistakes tend to flag your return for a close-up review.

You’ll also wait up to six weeks for your return if you use snail mail.

So, what are you waiting for? “Fill a pot of coffee, and get to work,” encourages Derus.

 

By: Alaina Tweddale

What to Do With a Tax Refund: 3 Ideas That’ll Practically Double Your Money If You’re a Homeowner

3 ideas on how to use your tax refund to save you a bundle on your home

If this year is anything like the last, almost 7.2 million Americans will get a tax refund this spring averaging around $3,000. If you’re a homeowner getting this refund, you’re fortunate because you’ve got more creative ways to invest it for a profit. Doesn’t matter if you’re selling, staying put, or stuck in the middle. Here are three homeowner-only options to grow that refund:

1. If You’re Early Into Your Mortgage
It may not be as instantly gratifying as a treehouse vacation in Costa Rica, but spending your tax refund to pay down your mortgage principal could save you enough funds to take a splurge-loaded vacation a bit later.

Let’s assume you have a 30-year-loan at the average loan amount of $292,000, a 4.5% interest rate, and you’re getting that average refund of about $3,000. If you apply that “found” money to your principal each year, CPA Micah Fraim of Roanoke, Va., says you can shave years off your mortgage — in this case, nearly four. That’s about 95 mortgage payments you won’t need to make! Even better is the more than $70,000 that you’ll save in interest payments over the life of the loan.

If you don’t want to make an annual commitment, think about this: Make that payment just once and you’ll cut seven months off your payments and save more than $8,000 in interest. And when you decide to sell, you’ll have more equity.

2. If You’re Planning to Sell
Invest it in staging, and you may be surprised by how quickly your home gets plucked from the market.

“Staging lets prospective buyers see the space as their own, instead of as belonging to the people who currently live there,” said Ashley Lewkowicz, owner of Ashley Kay Design in Bucks County, Pa.

“A home that’s not staged can sit on the market for six months or more,” she added. “A home I recently staged sold in less than two.”

Not only is a faster sale better for your bank account in terms of saved mortgage payments and utility bills, but a drawn-out listing can cause a home’s price to wilt. That makes those throw pillows, decorative bath salts, and rented furniture way worth the investment.

For a large, suburban home in a major metro area, staging can cost about $2,000 upfront, and then about $500 per month for furniture and accessory rentals, according to Lewkowicz. But a faster sale at a higher price can definitely more than double your money over the course of the sales process.

And most staging can be accomplished with simple little touches.

3. If You’re a Home Improvement DIYer
Who knew your home could be your own personal ATM? For many DIYers, putting that $3,000 tax return into small home improvements can result in getting far more than their investment out of the house later.

  • A new steel front door costs about $250, but can add about $1,500 when you sell.
  • New wood flooring costs about $1,770, but is worth $5,000 when you sell.
  • Even new insulation, which costs about $700, can recoup about $2,000 at sale.

If you’re willing to scope materials yourself and put in a little elbow grease, your tax return can fund a renovation for you to enjoy now and reap the financial benefits later.

By: Alaina Tweddale on HouseLogic.com

9 Easy Mistakes Homeowners Make on Their Taxes

Mistakes Homeowners Make on Tax Returns

By: G. M. Filisko

Don’t rouse the IRS or pay more taxes than necessary — know the score on each home tax deduction and credit.

As you calculate your tax returns, be careful not to commit any of these nine home-related tax mistakes, which tax pros say are especially common and can cost you money or draw the IRS to your doorstep.

Sin #1: Deducting the wrong year for property taxes
You take a tax deduction for property taxes in the year you (or the holder of your escrow account) actually paid them. Some taxing authorities work a year behind — that is, you’re not billed for 2013 property taxes until 2014. But that’s irrelevant to the feds.

Enter on your federal forms whatever amount you actually paid in that tax year, no matter what the date is on your tax bill. Dave Hampton, CPA, a tax department manager at the Cincinnati accounting firm of Burke & Schindler, has seen homeowners confuse payments for different years and claim the incorrect amount.

Sin #2: Confusing escrow amount for actual taxes paid
If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed. The regular amount you pay into your escrow account each month to cover property taxes is probably a little more or a little less than your property tax bill. Your lender will adjust the amount every year or so to realign the two.

For example, your tax bill might be $1,200, but your lender may have collected $1,100 or $1,300 in escrow over the year. Deduct only $1,200 or the amount of property taxes noted on the Form 1098 that your lender sends. If you don’t receive Form 1098, contact the agency that collects property tax to find out how much you paid.

Sin #3: Deducting points paid to refinance
Deduct points you paid your lender to secure your mortgage in full for the year you bought your home. However, when you refinance, you must deduct points over the life of your new loan.

For example, if you paid $2,000 in points to refinance into a 15-year mortgage, your tax deduction is $2,000 divided by 15 years, or $133 per year.

Sin #4: Misjudging the home office tax deduction
The deduction is complicated, often doesn’t amount to much of a deduction, has to be recaptured if you turn a profit when you sell your home, and can pique the IRS’s interest in your return.

But there’s good news. There’s a new simplified home office deduction option if you don’t want to claim actual costs. If you’re eligible, you can deduct $5 per square foot up to 300 feet of office space, or up to $1,500 per year.

Sin #5: Failing to repay the first-time homebuyer tax credit
If you used the original homebuyer tax credit in 2008, you must repay 1/15th of the credit over 15 years.

If you used the tax credit in 2009 or 2010 and then within 36 months you sold your house or stopped using it as your primary residence, you also have to pay back the credit.
The IRS has a tool you can use to help figure out what you owe.

Sin #6: Failing to track home-related expenses
If the IRS comes a-knockin’, don’t be scrambling to compile your records. File or scan and store home office and home improvement expense receipts and other home-related documents as you go.

Sin #7: Forgetting to keep track of capital gains
If you sold your main home last year, don’t forget to pay capital gains taxes on any profit. You can typically exclude $250,000 of any profits from taxes (or $500,000 if you’re married filing jointly).

So if your cost basis for your home is $100,000 (what you paid for it plus any improvements) and you sold it for $400,000, your capital gains are $300,000. If you’re single, you owe taxes on $50,000 of gains.

However, there are minimum time limits for holding property to take advantage of the exclusions, and other details. Consult IRS Publication 523. And high-income earners could get hit with an additional tax.

Sin #8: Filing incorrectly for energy tax credits
If you made any eligible improvements in 2014, such as installing energy-efficient windows and doors, you may be able to take a 10% tax credit (up to $500; with some systems your cap is even lower than $500). But keep in mind, it’s a lifetime credit. If you claimed the credit in any recent years, you’re done.

Installing a solar electric, solar water heater, geothermal, or small wind energy system can also make you eligible to take the Residential Energy Efficient Property Credit.

To claim the deduction, you have to use the complicated Form 5695, which can mean cross-checking with half a dozen other IRS forms. Read the instructions carefully.

Sin #9: Claiming too much for the mortgage interest tax deduction
Taxpayers are allowed to deduct mortgage interest on home acquisition debt up to $1 million, plus they can also deduct up to $100,000 in home equity debt.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice.

Read more: http://members.houselogic.com/articles/common-tax-mistakes/preview/#ixzz3wULjePdO

9 Documents That Help You Reap Real Estate Tax Breaks

South Bay homeowners - be sure to have these forms for your tax prep
Time to get ready for tax time! If you are expecting a refund and you’re a South Bay Homeowner, be sure to know about the 9 documents you should have when you prepare your return to take advantage of tax benefits of owning a home.

1. Mortgage Interest Statement (IRS Form 1098)
2. Property Tax Statements
3. Uniform Settlement Statement (HUD-1)
4. Moving Expense Receipts
5. Cancellation of Debt Statement (IRS Form 1099)
6. Utility statements for home office.
7. Income and Expense statements from rental properties.
8. Contractor receipts from energy efficient home improvements.
9. Mortgage Credit Certificate (MCC)

Read all the details at the Trulia real estate website.