How a Mortgage Can Reduce Your Tax Bill

How a Mortgage Can Reduce Your Tax Bill

Milford, NH New Homeowners Seek Advice

The money paid toward your mortgage interest reduces your adjusted gross income.  This brings down your taxable income, in some circumstances even putting you in a lower tax bracket.  To take advantage of this potential savings, you must deduct your mortgage interest from your annual tax bill.           

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Can a Home Office Be Considered a Business Expense

Hudson Resident Looks for Answers

One deduction that can add up for small business owners is the home office.  However, take this deduction carefully as it can trigger an IRS audit.  You can qualify for this deduction if the area is used exclusively and regularly for business purposes.  This area must be used as the principal location for the business, or it is a place where you regularly meet with customers.

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What Medical Expenses are Tax Deductible?

What Medical Expenses are Tax Deductible

Litchfield Resident Seeks Advice

Qualified, unreimbursed medical expenses that exceed 10% of your adjusted gross income for the calendar year can be deducted from your taxes.  These deductions include preventative care, treatment, surgeries, dental and vision care.  Prescription medications also fall into this deduction.

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Married Couples File Their Taxes

Amherst, NH Resident Seeks Advice

Married couples filing their taxes jointly can take advantage of a number of tax credits that aren’t available to couples filing separately including the Earned Income Tax Credit, Child and Dependent Care Credit, Student Loan Interest Deduction and Tuition and Fees Deduction.  The assumption may be that filing separately will put you in a lower tax bracket, however the tax brackets have a lower income threshold when filing separately.

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How to Correctly Pay Estimated Taxes

Estimated Taxes

Hudson Resident Seeks Advice

Estimated taxes must be paid quarterly to the IRS by anyone that is receiving an income without paying taxes.  This money can come from a job, investments, alimony or contest winnings.  To send in your estimated taxes, you must complete the form 1040-ES and mail this to the IRS along with your payment.  The taxes for each quarter’s income must be sent by the fifteenth of the month following the close of the quarter.

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How to Avoid IRS Underpayment Penalties

RS Underpayment Penalties

Litchfield Resident Seeks Help

If you wind up owing $1,000 or more in taxes, you may incur an IRS underpayment penalty.  For the last tax season, those who paid in at least 80% of their tax bill did not incur the penalty, in the future that number will be 85%.  If you wind up a significant amount in taxes, it is important to adjust your tax withholdings for the current year.  This may mean having your employer take more out of your paycheck or increasing estimated payments for those that are self-employed.

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What Are Some Red Flags for an IRS Audit?

income-tax-IRS Audit

Goffstown Resident Inquires

Certain activity, even when legitimate can increase your risk for an IRS tax audit.  Some deductions can make an audit more likely including home office, business meals and travel, unreimbursed business expenses and alimony.  Errors in math on your return and not reporting taxable income, in the form of 1099s and W2s, are also all red flags.

A resident in Goffstown, NH was concerned about running the risk of an IRS audit.  He contacted Merrimack Tax Associates looking for suggestions to reduce that risk.

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How Long Should You Keep Tax Records?

Tax Records

Amherst Resident Looking to Spring Clean

According to the IRS, federal tax returns should be kept a minimum of three years.  The IRS only has three years to assess additional taxes, and taxpayers have three years to make additional claims.  Investment forms, such as retirement documents, should be kept at least seven years.  Bank statements and pay stubs should be kept for two years or more.

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