This was originally published on Monday, March 27, 2017, in the Pacific Daily News. Click here to subscribe to the PDN.
As the tax deadline quickly approaches, be sure that you are getting all of the deductions and credits for which you are eligible to help lower your tax bill. Many deductions are overlooked because people are unaware of them or don’t want to take the time to see if they qualify.
Here are some tax tips for the 2016 tax year:
- Charitable contributions. If you attended a charity benefit or event, you may be able to deduct the dollar amount. The benefit or event must have taken place in the tax year. The type of donation and the type of organization can limit your charitable deduction. Donations to assist victims of natural disaster can be included.
If you donated clothing, toys, furniture, or other household items to charity, you can use the fair market value of the items donated. If you contributed to a church, use the Schedule A form. The IRS requires that you keep a written acknowledgment or receipt from the church for any contributions.
- Estate and gift taxes. You can generally give money or property to another person without any tax consequences, provided the amount does not exceed $14,000 per year. If this amount is exceeded, it must be reported on a gift tax return.
- IRA and retirement. There is no additional 10-percent tax on early withdrawals up to $10,000 in your lifetime from an IRA if you are buying a first home for yourself, your children or your grandchildren. There is also no additional 10-percent tax if you are paying higher education expenses for yourself, your spouse, your child or your grandchild.
You can contribute up to $5,500 to your IRA (or $5,500 to your spouse’s IRA if married filing jointly). Each taxpayer age 50 or older is eligible to make an additional $1,000 “catch-up contribution.” Learn more about IRA and retirement accounts at the IRS website.
- Real estate property. Your home purchase can be a wonderful tax advantage. You may be able to benefit from itemizing your deductions. If itemizing, you can deduct payments such as mortgage interest, real estate taxes and most points paid by you or the seller in the year of purchase. The earlier in the year you purchase your home, the more months of mortgage interest you will have by tax time. Mortgage insurance premiums will be allowed as deductible interest on Schedule A, Itemized Deductions.
- Military. If you are an eligible member who served in a combat zone, the IRS can exclude your income from taxation. Excludable income is your basic pay, re-enlistment bonuses, school loan repayments, imminent danger/hostile fire pay, discharge benefits and awards and other financial incentives. Non-excludable taxes are military pay earned while in combat zone, but they are are subject to Social Security and Medicare taxes.
The exclusion is for the months you served in the combat zone. Military members serving in a combat zone may qualify for a deadline of 180 days after returning for filing taxes. Contact the IRS and inform them of your situation.
The IRS excludes retired military receiving Department of Veterans Affairs education benefits as taxable income. Payments you receive for education, training, or subsistence under any law administered by the VA are tax free. Don’t include these payments as income on your federal tax return.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at firstname.lastname@example.org and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.