This Columbia SC tax update involves a number of changes to take into consideration before filing your 2016 income tax returns. And despite the changes, overall there aren't too many variations in the preparation of your 2016 income tax returns compared to 2015. However, there are a few important considerations for you to take note of to make sure you're filing as accurately and efficiently as possible this year – especially if you're planning to get a tax refund.
One important Columbia SC tax update of which to be aware is that taxpayers will have three extra days to file their returns this year. April 15th falls on a Saturday, and when that occurs the tax deadline is extended to the next business day, ordinarily Monday, April 17th. However, April 17th is the day the District of Columbia recognizes Emancipation Day. So the tax deadline will be Tuesday, April 18th.
The various tax deductions and filing rules are essentially the same as last year. The difference will be in the tax brackets, which were adjusted for inflation. So, as one CPA put it, don't necessarily assume that what you did last year can be relied on this year. Consult the tax tables carefully.
This Columbia SC tax update addresses several changes to be aware of.
The mileage rate is lower. Tax regulations allow for tax advantages for using your personal vehicle for business, charitable, moving or medical purposes. You are able to deduct the actual costs involved, or use the mileage rate as prescribed by the IRS, whichever is greater. For 2016, the rate for business mileage is 54 cents per mile, 3.5 cents lower than it was in 2015. For medical or moving expenses, the rate is 19 cents per mile, down from 23 cents in 2015. The mileage rate for charitable purposes remains the same at 14 cents per mile.
There could be a delay in receiving your refund. If you are claiming the Earned Income Tax Credit or the Additional Child Tax Credit, expect your refund to be delayed in order to give the IRS more time to investigate errors and fraud in claiming these credits. Blame the delay on a new law, Protecting Americans from Tax Hikes, passed in 2015.
If you need help from the IRS, you will need an appointment. The IRS taxpayer assistance centers no longer accept walk-ins. Simply call in advance to make an appointment and help will be available.
Your income tax bracket may have changed. Income levels for all tax rates have been adjusted slightly to reflect the results of inflation. Consult the new tax tables.
Your personal exemption has been raised. In 2016, the personal exemption has been increased from $4,000 to $4,050. For taxpayers with an adjusted gross income of $259,400 for single filers and $311,300 for a married couple filing jointly, the exemption is less. The exemption is not available for taxpayers with an adjusted gross income of $381,900 filing as a single taxpayer and $433,800 for couples filing jointly.
You may get a larger Earned Income Tax Credit. Another Columbia SC tax update is for taxpayers who have three or more children. The maximum credit for their 2016 income tax returns is $6,269, compared to $6,242 in 2015. The formula for the tax credit includes several factors, including income and the number of dependents.
You'll pay a larger penalty if you weren't covered by health insurance. If you don’t have health insurance, you’re going to be penalized – again – to the tune of $695 per adult and $347.50 for each minor child. Good news, though… the maximum household penalty is $2,085. Still, according to IRS officials, most families won’t actually owe the IRS any money, thanks to over 30 existing exemptions already in place.
If you won money in the Olympics or Paralympics, you may not have to pay taxes on the winnings. Normally, if you win money or prizes in a contest or a lottery, you have to pay taxes on those winnings. If your adjusted gross income is less than $1 million ($500,000 if married filing separately) you won’t have to pay taxes on your winnings from the Olympics or Paralympics. Thank Congress for a new law that was passed last year.
If you owe enough back taxes, you may lose your passport. The U.S. State Department now has the right to revoke your passport if you owe more than $50,000 in unpaid taxes. This is due to a 2015 transportation regulation called the FAST Act. Insiders say the IRS so far hasn’t provided back taxes information to the State Department, but expects to do so later this year. So, if you plan to travel abroad in the future, you better make sure you’ve paid your taxes.
You can find more articles pertaining to Columbia SC taxes in the Taxes section of our site below Columbia SC Real Estate Categories in the column to your right.
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It’s time to look at your Columbia SC taxes again. Another year has come and gone and soon it will be tax deadline day. Regardless of whether you hire an accountant, use an online tax service, or file your income tax returns yourself, one question constantly appears on your tax return form. The question? Did you move last year?
While the answer seems relatively simple – you either moved or you didn’t – the answer may often create a lengthier list of additional questions that may affect how much you either owe to or are to be refunded by the IRS. Let’s take a quick look at three separate scenarios worth considering, and what you should know about each – and how they may affect your Columbia SC taxes.
If you moved to a new state…
If you relocated to a different state during the tax year, you’ll be required to file a part-year tax return for the portion of the year you resided in that state. Naturally, you should receive W-2 forms from your employer with income information for each state you lived in during the tax year. When it comes to the tax return itself, if your move was precipitated for work purposes, it’s possible to deduct moving expenses for the relocation. If that’s the case, make sure you have proper back-up – receipts for storage fees, movers, and travel expenses. While moves paid by your employer are not deductible, it’s still a good idea to have all your receipts in the event you find out they aren’t eligible for reimbursement by your employer, but may be tax-deductible. That could be good news for your Columbia SC taxes.
If you bought a home…
If you purchased your home during the taxable year, welcome to a whole new list of expenses, but also some nice tax benefits. Homeowners can deduct mortgage interest expense they paid during the taxable year, prorated property taxes for the time they owned the home and any loan origination fees or “points” (a percentage of the mortgage loan amount usually charged by the lending institution.) If you have a mortgage – and these days, who doesn’t? – you should receive Form 1098 from your mortgage lender. Form 1098 should include mortgage interest you paid during the taxable year, real estate property taxes paid out of the escrow account on your behalf, and any points you may have paid as a result of obtaining the loan. In addition, the form will show any private mortgage insurance (PMI) premiums, if applicable, which are also tax-deductible.
It’s also important to have copies of your closing statement and the closing disclosure (legally required from the mortgage lender to the buyer no less than three days prior to loan closing.) These documents recount the financial trail of the sale and closing of the loan. The two forms can prove invaluable to tax preparers because they can readily see the information necessary for preparing your Columbia SC taxes – along with the Form 1098 from your mortgage lender.
If you sold a home…
While selling your home lacks all the tax-deductible perks buying one has, in most situations you can protect the profit you earned from the home’s sale from being taxed. IRS regulations say a profit of up to $250,000 for individuals and up to $500,000 for couples filing jointly need not be reported on your tax returns – if you primarily lived in the residence for a minimum of two years out of the last five years.
Again, as with buying a home, it’s a good idea to keep the closing settlement for your records as well as any receipts for any home improvements you’ve performed on your home. The reason? The cost of replacing a roof or adding solar panels could potentially be used as expenses to be subtracted from the original profit amount. In addition, experts say, homeowners should add the cost of such items to the price of the home when they sell it. Naturally, unless you were fortunate enough to sell a multi-million property, property values rarely reach levels where the $250,000 or $500,000 exclusion applies to the average U.S. home seller. With the average sales price of a home in the nation at around $350,000, the home value would likely have to more than double to reach the exclusion level.
For situations where you as a seller didn’t reside in the home for the required two years out of the last five, certain provisions may apply that could affect your ability to get a partial exclusion. If there are circumstances beyond the homeowner’s control – such as an illness or job transfer that required you to relocate – you may still be able to avoid paying taxes on at least part of the profit. Experts say in such unforeseen circumstances, homeowners are sometimes granted half the exclusion amount.
As is the case with any tax-related question, if you have concerns about what is and isn't deductible on your Columbia SC taxes, we strongly encourage you to consult a CPA or tax professional. And, as always, make sure you have all home-related documents and expense records in a safe place at your disposal in the event you’re asked a question that may require back-up for your tax preparer.
Knowing as much as possible about what tax consequences homeownership carries with it is an important asset. And, for homeowners who’ve moved during the tax year, it can mean the difference from being able to deduct money from your Columbia SC taxes and having to potentially pay more.
You can also find additional information online at www.irs.gov and by searching broader keywords on the web such as “real estate tax deductions” or “home tax deductions.” Users may also find it helpful to type in the actual question to search for accurate answers. For example, “I sold my home in 2016, what are my tax consequences.”
You can find more articles pertaining to Columbia SC taxes in the Taxes section of our site below Columbia SC Real Estate Categories in the column to your right.
We also post tips daily on Twitter and Facebook and would love for you to follow us there as well.
Columbia SC tax preparation time may seem a long way from now, but with 2016 rapidly coming to a close it’s never too early to begin thinking about your 2016 taxes. According to the U.S. government, it is estimated that approximately 60% of individual taxpayers use paid tax preparers to fill out, calculate and complete their income tax returns. If you’re included in that 60% it’s probably a good idea to at least be thinking about your plans – it could mean the difference between having a good experience and a bad one.
Some tax preparers choose to meet with you directly to get the information they need, while others will have you fill out a questionnaire. This article will focus on ten steps you can take regarding your Columbia SC tax preparation and planning with only a few weeks left in the year.
Your Columbia SC Tax Preparation To-do-List
Select a preparer
If you’re contemplating using an accounting professional to handle your Columbia SC tax preparation, it’s a good time to start looking for one. One of the best sources for referrals of good tax preparers is to ask friends, business associates, your lawyer or your banker. During the consideration process, make sure the candidate you’re thinking of retaining has a Preparer Tax Identification Number (PTIN) confirming that he or she is qualified. The PTIN is proof that person is authorized to prepare federal income tax returns. The next step in choosing a preparer is to ask questions about the preparation fees. Nobody likes surprises – especially at tax time – so understand what the charges will be ahead of time. Most preparation fees depend on the complexity of your return and the time it takes to complete the various information requirements, but most tax preparers can give you a price range so you’ll know what to expect. A word of advice: Don’t do business with a tax preparer that will charge you a percentage of your refund.
Set up an appointment
Because experienced tax preparers are very busy during the peak “tax season,” its best to schedule an appointment in advance – even if it’s for late January or early February – just to make sure you can get on their appointment calendar. Of course, if you’re expecting a refund, the sooner you can get your information together and meet with your tax preparer, the sooner you can file and receive your refund.
Gather your information
Under normal circumstances by the end of January you will likely receive a number of pieces of information you’ll need to give your tax preparer to complete your returns. Here are some of the most common forms:
• Form W-2 if you were employed
• Form SSA-1099 if you received Social Security benefits
• 1099s to report various additional sources of income (especially if you were an independent contractor)
• Form 1095-A to report information from the federal government marketplace from where you bought your health insurance coverage
• 1098s reporting mortgage interest paid, student loan interest paid, or college tuition payments
• Form W-2Gs to report gambling winnings
• Schedule K-1s to report income or loss from business entities in which you have an ownership interest
Collect your receipts
If you choose to itemize personal deductions rather than claiming a standard deduction, you’ll need a greater degree of verification and proof in the form of receipts. If you’re itemizing, collect the receipts (or cancelled checks) you have for such things as medical costs not covered by or reimbursed by health insurance, property taxes and employment-related expenses.
Assemble your charitable contribution records
If you choose to itemize deductions, you’ll need to have detailed records to legally claim any tax write-off. Charitable contributions of $250 or more require a written confirmation from the charity verifying the contribution and stating that it was a qualifying donation.
Be prepared for tax law changes
Your Columbia SC tax preparation expert should be able to help you be aware of any new tax rules and regulations so you can avoid any unpleasant surprises. The individual healthcare mandate (the Affordable Healthcare Act) created a myriad of changes, as many will remember. We recommend asking your tax preparer what changes, if any, may affect you this year or you can go online to www.irs.gov.
Provide a list of personal info
Give your tax preparer information such as your Social Security number and those for each dependent you claim on your returns. In addition, list the addresses of real estate you own, including a second home or rental property, if applicable. Your tax preparer may ask for additional information on these properties, as well.
Will you file for an extension?
If you know now that you’ll need additional time to complete your tax returns prior to the April 17th deadline (normally the 15th, but the 15th is on Saturday in 2017 so you'll have two extra days), alert your tax preparer. More often than not, items like Schedule K-1s can cause taxpayers to file for an automatic 6-month extension.
Decide what to do with you refund
If you’re entitled to a tax refund, there are several options as to the instructions you can give to the IRS (the federal government) to do.
- Have some or all of it applied to your income tax bill on your next return.
- Have them send you a check or use direct deposit into a designated account.
- Contribute some or all of the refund to certain types of accounts for the expressed purpose of purchasing U.S. Savings Bonds through Treasury Direct.
Locate a copy of last year’s tax return
If you choose a new Columbia SC tax preparation professional you’ve not worked with before, it will be helpful for him or her to have access to information on the previous year’s return. For example, payers of interest and dividends, and information on your favorite charities would be important reminders as they rarely change from one year to the next.
You can find more articles pertaining to Columbia SC tax preparation in the Taxes section of our site below Columbia SC Real Estate Categories in the column to your right.
We also post tips daily on Twitter and Facebook and would love for you to follow us there as well.
Even though the Columbia SC tax season has come and gone for most filers, “extension season” is here until October 17th. If you’re a homeowner and you filed an extension back in April, you’ll want to make sure you take advantage of some important Columbia SC tax deductions that can reduce your income tax liability when you file your returns.
Mortgage interest, real estate property taxes and mortgage insurance premiums (if applicable) are all deductible. Added together, these items can amount to a significant savings on your tax bill. Be prepared to include these deductions on your income tax returns. After all, tax advantages are among the major perks of home ownership.
Let’s examine four Columbia SC tax deductions you should definitely take advantage of.
Home mortgage interest
Your monthly mortgage payments include principal and interest. The interest is the amount you can deduct at the end of the year on you income tax returns. Federal regulations allow a homeowner to deduct the interest amount (up to $1 million if you’re filing jointly, or $500,000 if you’re single or married and filing separately) on a primary residence. Since the amount of interest you pay each year on your home mortgage is likely one of the largest deductions you can take on your tax bill, it’s important to know a few “ins and outs.” The mortgage interest deduction is available for interest paid on home purchases, refinances, home equity lines of credit (HELOCs) or second mortgages for any purpose. The amount of interest deductible as a result of home equity debt only applies to loan amounts up to $100,000 ($50,000 if you’re single or married and filing returns separately.) As you can imagine, the interest deduction can total several thousand dollars and can make a big impact on the amount you owe when you file your returns. Remember, it’s important to itemize your deductions accurately. Mortgage lenders are required to send you an annual statement showing how much interest you paid during the year.
Mortgage points
If you paid “points” on your mortgage loan when you obtained financing you may be able to deduct them, as well. Points are percentage points of the loan amount and occur in one of two ways: discount points, which are paid by the borrower to enable him to prepay a portion of the mortgage loan interest to “buy down” the interest rate and the loan origination fee. As the name implies, a point is the equivalent to 1% of the mortgage loan amount. Often, homeowners forget about this all-important deduction. Overlooking points can be an expensive mistake. For example, if you borrowed $350,000 and paid an origination fee of 1%, the deduction of $3,500 could go directly to reducing your tax liability.
Real estate taxes
Another of the Columbia SC tax deductions you’ll want to make sure you include are the property taxes on your home. Real estate taxes are deductible on primary residences and can be deducted in the year in which they are paid. The property assessor’s office in the county where your home is located usually mails a statement that includes the amount of your real estate property taxes due. However, keep this in mind – if you purchased a home during the year the property taxes were likely pro-rated on the closing statement. The sellers were reimbursed for the portion of the taxes they “paid” up until the date of settlement. As the buyer, you can then deduct the entire amount of the real estate taxes – not just the amount you were responsible for in the pro-ration.
Mortgage insurance premium payments
When you purchased your home and obtained mortgage, if you made a down payment of less than 20% – or if your loan-to-value (LTV) ratio was less than 80% – you’re probably paying mortgage insurance to the lender each month as part of your payment. Mortgage insurance is a type of coverage that protects the lender against the borrower defaulting on the mortgage payments. Currently, mortgage insurance premiums are deductible for policies provided by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Rural Housing Service – in addition to policies provided by private mortgage insurance companies on most conventional home loans.
While the Internal Revenue Service allows you to deduct the insurance premium payments as part of your mortgage interest deduction, there are restrictions for higher-income borrowers. For example, the deduction is not available to homeowners whose adjusted annual gross income is $109,000 or more (or more than $54,500 for single persons or married couples who file separately.)
Non-deductible items
While the list of Columbia SC tax deductions can be quite a tax savings for homeowners, everything related to home ownership isn’t necessarily part of that list. Let’s look at a few items that aren't deductible. Be sure costs for these items don’t make their way onto your personal income tax returns unless you are running a business from your home, in which case, many of the rules change!
• Homeowner’s insurance coverage or title insurance coverage. Remember, mortgage insurance is the only type of insurance that can be deducted for most individuals
• Real estate depreciation
• Utilities expenses (electricity, gas or water)
• Loan closing costs. Points are the only exception.
• Lost or forfeited deposits, down payments or earnest money
• Most home improvements – unless they were financed as part of your home’s equity, or you own a home-based business and claim part of your home on your taxes.
• Homeowners association (HOA) dues, fees or assessments
• Transfer taxes, stamp taxes, or recording fees in the sale of a personal residence
In summary, home ownership has always provided tax advantages. It’s one of the attractive features of buying and owning a home. The deductions are part of a federal government incentive for Americans to own their own homes. Remember this, however, if your list of itemized deductions doesn't exceed the standard allowable deduction for which you’re eligible, then you should claim the standard deduction.
As always, if you have questions about your income taxes, what’s deductible and what’s not – it’s always best to consult a professional tax advisor. Deductions are important, and you certainly want to make sure you take advantage of every opportunity to save money on your taxes.
You can find more articles pertaining to Columbia SC tax deductions in the Taxes section of our site below Columbia SC Real Estate Categories in the column to your right.
We also post tips daily on Twitter and Facebook and would love for you to follow us there as well.
Columbia SC tax advantages are one of the many perks to home ownership. Tax deductions are important to those homeowners who itemize when they file their personal income tax returns. With the tax deadline quickly approaching, it's important to know how to calculate your homeowner tax benefits. Here's a brief analysis of how your tax advantages work.
Columbia SC Tax Benefits: How to Calculate
The cost of your primary residence.
If you own a home and have a mortgage, your monthly housing expense is made up of four integral parts: principal, interest, taxes and insurance. The four components are commonly referred to as PITI.
Your monthly mortgage payment to your lending institution includes principal (the amount of money your borrowed) and interest (the contracted percentage rate calculated each month on the outstanding principal balance.) As you make payments, principal reduces the balance of your loan each month, while interest is the cost of borrowing the money paid to your lender each month.
Taxes are real estate property taxes assessed by your county and/or city each quarter, semiannually or annually. Your tax bill is dependent on the assessed value of your home and will vary from state to state
Insurance is comprised of premiums paid to a homeowner's insurance company to protect you and your mortgage lender in the event your home is damaged by a fire, flood, earthquake or other disaster.
Let's take a look at an example of what the PITI payment may be on a typical home.
Say you purchased a home for $300,000 with a 20% down payment. Let's assume you obtained a 30-year fixed rate mortgage at 3.5%. Using a popular mortgage calculator, here's your approximate PITI breakdown:
Principal and interest (the mortgage payment) $1,077 per month
Property taxes (using a U.S. average rate of 1.2% on the $300,000 value) $ 300 per month
Homeowner's insurance $ 75 per month
TOTAL COST $1,452 per month
Annual Columbia SC tax advantages for a homeowner's primary residence.
When you own a home and use it as your primary residence, you are allowed to deduct the annual interest on your mortgage loan and the real estate property tax you pay each year.
Using the above illustration as an example, of the total principal and interest payment of $1,077, around $700 is the interest portion and $377 goes toward paying down the principal. Therefore, the amount of interest you will pay during the year will be roughly $8,400 ($700 per month x 12 months.)
Again, using the example above, the property taxes are $3,600 annually ($300 per month x 12 months.)
Added together, these two amounts — your mortgage interest and your real estate property taxes – total $12,000. That full amount may generally be deducted from your income taxes, (for low-to-moderate-income homeowners.)
How do tax deductions help save money?
In preparing to file your income tax returns each year, you may have heard of a form called Schedule A: Itemized Deductions. That's where you list allowable deductions that are deducted from your income. The result is you pay taxes on a lower income amount.
Schedule A contains line items for mortgage interest and real estate property tax deductions. Using the above example, the IRS allows you to itemize the $8,400 in mortgage interest paid during the taxable year, as well as the $3,600 in real estate property taxes paid during the taxable year.
By itemizing those two allowable deductions, you can reduce the amount of income on which you will pay taxes by $12,000.
To complete the example, let's say you earned a total of $90,000 during the taxable year. The two line item deductions above totalling $12,000 are subtracted or "deducted" from your $90,000 gross income for an adjusted gross income on which you'll be taxed of $78,000.
While different income levels are taxed at different percentage rates, you'd be taxed at roughly a 28% tax rate on this income amount. Estimate the amount of savings the tax deductions save you by multiplying the $12,000 in deductions by the 28% tax rate. That produces an estimated annual Columbia SC tax savings of $3,360. That's the amount of savings you will enjoy by owning a primary residence with a mortgage.
Taking it a step further, if you convert the annual savings of $3,360 to a monthly amount of $280 and subtract it from the total PITI above of $1,452, the net "after-tax benefits" monthly cost is reduced to $1,172.
Additional Columbia SC tax benefits.
There are additional tax advantages for owners of primary residences that should be considered. Points paid to a mortgage lender for the origination or refinance of a mortgage loan are deductible. In addition, home energy credits, deducting mortgage insurance for lower earners and deductions for a home office are all examples of allowable tax deductions. However, each can be a little tricky, so make sure you read the fine print and understand what's allowed. We suggest you get answers from your CPA or tax advisor.
There are other homeowner tax benefits you may enjoy when you sell your primary residence. Single taxpayers are exempt from having to pay capital gains taxes on up to $250,000 in capital gains realized from the profit of selling their home. The exemption increases to $500,000 for married taxpayers. Plus, any money you spent on home improvements or renovations while you owned the property will reduce your capital gain.
The above information applies to primary residence owners. Some of the rules may also apply to second-home owners. Consult your Columbia SC tax advisor for variations on second-home deductions. And, if you own rental property, it's a good idea to also discuss your tax benefits with a CPA or tax professional,
Get more Columbia SC tax tips at our Taxes section of articles just below Columbia SC Real Estate Categories to your right. Follow our posts also on Facebook and Twitter.