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| Tax School Homepage |
| Interest Expense |
| Interest is an amount you pay for the use of borrowed money. To deduct interest you paid on a debt you must be legally liable for the debt, you must have a true debtor-creditor relationship with your lender. You claim interest expenses on Schedule A of form 1040, so you must itemize your deductions to receive the benefit. If you prepay interest, you must allocate the interest over the tax years for which the interest applies. |
| You can deduct as itemized deductions on Form 1040, Schedule A, your net investment income and qualified residence interest. The investment interest is limited to interest from your net investment income. In the old days, personal interest paid on any loan such as a loan on a car, and credit card debt interest paid were deductible. |
| Qualified residence interest and points are generally reported to you on Form 1098 by the financial institution to which you made the payments such as interest from grandfathered debts, and any mortgage taken out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt) up to a total of $1 million for this debt plus any grandfathered debt. Also, a home equity debt other than home acquisition debt taken out after October 13, 1987, up to a total of $100,000. |
| You may be able to take a credit against your federal income tax if you were issued a mortgage credit certificate by a state or local government for low-income housing. To figure the amount of the credit, use Form 8396. |
| Charitable Contributions |
| Charitable contributions are deductible on your Schedule A itemized deductions. For charitable contributions to be deductible, they must be made to qualified organizations. Don't be fooled, not all organizations are qualified organizations. Some organizations look legit, but you should ask for proof before making your donations to them if you want to be able to deduct it with the IRS. |
| If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received. You must fill out Form 8283, and attach it to your return, if your deduction for a noncash contribution is more than $500. If you claim a deduction for a contribution of noncash property worth more than $5,000, you will need a qualified appraisal of the noncash property and must fill out Form 8283, Section B. |
| For a contribution of cash, check, or other monetary gift (regardless of amount), you must maintain as a record of the contribution a bank record or a written communication from the qualified organization containing the name of the organization, the date and amount of contribution. In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations. |
| For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. |
| Earned Income Credit |
| You may qualify for the earned income tax credit (EITC), if you worked last year but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund even if you did not have federal income tax withheld. To qualify for the credit your adjusted gross income (AGI) must be below a certain amount and you must not be a qualifying child of another person, have a qualifying child who meets four tests (the age, relationship, residency and joint return tests) and you are age 25 but under age 65 at the end of the year if you don't have a qualifying child. If you qualify, the amount of your EITC will depend on your filing status, whether you have children and the number of children you have, and the amount of your wages and income. |
| Child Tax Credit |
| The Child Tax Credit is an important tax credit because it may be worth as much as $1,000 depending upon your income. With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17. To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, and includes a grandchild, an adopted child, a niece or nephew. If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Filing Season Program rights reserved. |
| Revised: 12/14/14 |
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