It’s Tax Time! Will Itemizing Save You Money?

Tax filing time is just around the corner, and most of us are probably either well on our way to filing our returns or at least starting to think about it. At this time of year, many people start to wonder what they can do to make sure they aren’t paying more taxes than they actually owe.

A tax deduction reduces your taxable income, meaning you owe less. For example, if your income is $50,000, but you have tax deductions of $5,000, then your taxable income is reduced to $45,000.

How much this deduction will save you will depend on your tax rate. Your tax rate (also known as your tax bracket) is the maximum tax rate that the highest portion of your income is charged. To use a general example, a person in the 25% tax bracket with a $1,000 deduction might save $250 in taxes.

When we file taxes, the government allows filers to choose between taking the “standard deduction” and itemizing deductions. You cannot do both. So the first thing all taxpayers need to do is find out what the “standard deduction” amount is for them.

The standard deduction for filing taxes is based on filing status. The amount is set each year by the federal government. For the 2016 tax year, the standard deductions are:

  • Single or Married Filing Separately* – $6,300
  • Married Filing Jointly – $12,600
  • Head of Household – $9,300
  • If you are 65 or older or blind, the standard deduction is increased.

*When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction, and therefore must itemize to claim his or her deductions.

Next, check to see what you could deduct if you went the “itemized deductions” route, and add up these deductions. Now, compare the two totals to see which amount is larger. If the standard deduction is larger, it is likely that the standard deduction is the way to go. But if itemizing deductions adds up to a larger total, then you may be better off itemizing deductions.  For more information, refer to this helpful link from the IRS: Should I Itemize? (http://www.irs.gov/taxtopics/tc501.html)

What Can I Itemize?

Some examples of expenses that can be itemized include mortgage interest, taxes paid, charitable contributions, casualty and theft losses, unreimbursed job expenses, and medical expenses. Charitable contributions are donations to qualified non-profit organizations. It is called itemizing because the items mentioned have to be listed (itemized) on a form called a Schedule A.  If you want to get an idea of exactly what you can itemize, download a Schedule A form (http://www.irs.gov/pub/irs-pdf/f1040sa.pdf) from the IRS.

For many homeowners, the first thing to check is mortgage interest. If the amount of mortgage interest that you paid is greater than or close to your standard deduction, then it is likely that it will be to your advantage to itemize deductions.

Qualified medical expenses that exceed 10% of your adjusted gross income may be itemized. For example if your adjusted gross income is $50,000 and your qualified unreimbursed medical expenses are $5,100, then you can deduct $100. If you are over 65, they only need to be more than 7.5% of your adjusted gross income. In order for a medical expense to be deductible, you must have paid for it yourself. For example, health insurance premiums you pay out of pocket count. However, if your employer pays your health insurance premiums, you cannot deduct them.

Job expenses are listed under a category that includes other miscellaneous expenses, such as tax preparation fees and safe deposit box expenses. In order for them to be deductible, the total for this category must exceed 2% of your adjusted gross income.

Alternative Minimum Tax and Deductions

Individuals with a higher income may be subject to the alternative minimum tax (AMT). The AMT is a parallel tax system that applies to taxpayers who have certain types of income that receive favorable treatment, or who qualify for certain deductions under tax law. The AMT sets a limit on how much these benefits can be used to reduce total taxes paid. Every taxpayer is responsible for paying either the regular tax or the minimum tax, whichever is higher. The Internal Revenue Service has an online calculator to help you figure out if you are subject to the alternative minimum tax. For more information, take a look at the AMT Assistant for Individuals.

It is important to understand your options when deciding whether or not to itemize on your return. Knowing your standard deduction and how it compares to your itemized deductions can save you money and time.  For more information, check out the IRS website at www.irs.gov. The Interactive Tax Assistant at that site can also be very helpful.

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2017 Free Tax Preparation Resources

There are a variety of options and resources to make completing your tax return easy and inexpensive. Check these options out and spread the word.

MyFreeTaxes: Use an online program funded by United Way and developed by H&R Block. It’s free to filers with Adjusted Gross Incomes (AGI) of $64,000 or less.

AGI does not include money contributed to tax deductible retirement plans or certain other adjustments. Your 2016 AGI can be found on line 37 of your Form 1040 tax return.

For more information or to get started filing go to www.MyFreeTaxes.com

Would you like guided assistance using this software and you live in Hillsborough County Florida?
Make an appointment at the Hillsborough County Extension Office. IRS certified volunteers will provide 1-1 assistance starting February 7, 2017. Returns can be e-filed or printed and mailed. You can even start your return here and finish up at home. For information about appointments visit our web site http://hillsborough.ifas.ufl.edu/#news5

Free File: In addition to H&R Block, many tax preparation vendors will be partnering with the IRS to provide free online tax preparation programs. These services will be available starting January 13. To find out more go to the IRS web site www.irs.gov  and click on the free file link.

Volunteer Income Tax Assistance (VITA) Sites: IRS certified VITA volunteers
will do the return for you. The income limit for these sites is generally $54,000, but some sites are flexible.

Find a VITA site at https://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers

AARP Foundation Tax-Aide: AARP will also have free tax sites throughout the community. Their target audience is low-moderate income residents and they especially want to help folks age 60 or older. Their sites open in late January and early February. Information can be found at http://www.aarp.org/applications/VMISLocator/searchTaxAideLocations.action

IRS Interactive Assistant: This tool is available at the IRS website. It provides customized answers to your questions about dependents, deductions, credits, filing status & much more.

https://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1

Florida Master Money Mentor Training

FMMM

Hillsborough County Extension is offering training to those interested in becoming  a Florida Master Money Mentor volunteer. The program is an opportunity for participants to learn more about personal finance and then share that knowledge with others.

The four-week training is scheduled February 2, 9, 16 and 23 from 9:30 a.m. to 1 p.m. at the County Extension office, 5339 County Road 579 in Seffner. Participants must attend all four classes and complete some at-home study. Early Bird registration -register before January 13- is $18.00. Regular registration cost is $25.00 and registration deadline is January 26.

No previous financial education or background in financial services is required to be a Florida Master Money Mentor. Training topics include effective communication strategies, cash flow management, credit, debt management, and saving and investing for future goals.

Mentors are asked to commit to volunteering at least three hours per week, and follow guidelines in regards to reporting, client confidentiality, and providing research-based unbiased information.

Individuals who promote, sell, or endorse financial products or services are not eligible to be volunteers. But they can attend the training to increase their personal financial knowledge.

Register online at https://2017fmmm.eventbrite.com . Seating is limited so register early to reserve a spot.

For more information, contact Lisa Leslie, Hillsborough County Extension Services at (813) 744-5519 ext. 54143 or lesliel@hillsboroughcounty.org

The University of Florida Extension provides the infrastructure for this program throughout the state of Florida, thanks to a gift from Bank of America. #

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Women & Money: Unique Issues

When: October 11, 18, & 25, 2016, 6:30 p.m. – 8:00 p.m.

Where: Florida West Coast Credit Union, 1225 Millennium Pkwy, Brandon, FL 33511.

Topics will include:

  • Evaluating Money Decisions
  • Goal Setting
  • Investment Basics
  • Estate Planning

Cost: $10 for the entire series. No shows and late cancellations will not receive a registration refund. Refreshments will be provided.

Registration Deadline: October 4, 2016. Seating is limited, so register early to reserve a spot.

Register at:  https://2016wm1.eventbrite.com

This is a non-commercial, educational program. No products or services will be sold. The presenter is a University Florida/Hillsborough County Extension personal finance educator.

For additional information contact Lisa Leslie at 813-744-5519 ext. 54143.

Persons with disabilities requiring special accommodations, please contact Lisa at 744-5519 x54143 at least five working days prior to the program so proper consideration may be given to your request.

Hillsborough County Extension Service is a cooperative service of Hillsborough County Board of County Commissioners and the University of Florida. The      Institute of Food and Agricultural Sciences (IFAS) is an Equal Opportunity Institution authorized to provide research, educational information and other services only to individuals and institutions that function with non-discrimination with respect to race, creed, color, religion, age, disability, sex, sexual orientation, marital status, national origin, political opinions or affiliations. U.S. Department of Agriculture, Cooperative Extension Service, University of Florida, IFAS, Florida A & M, University Cooperative Extension Program, and Boards of County Commissioners Cooperating.

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Did you hear about the fiduciary rule & retirement plans?

A fiduciary is someone who has a legal obligation to put a client’s interest ahead of their own. A financial professional with a fiduciary obligation must recommend investment products that are in your best interest.

Some financial professionals have this legal obligation and some do not. For instance, brokers do not have fiduciary responsibility, a Registered Investment Advisor does. A broker is required to recommend products that are suitable for their clients. But they may also legally sell products with substantial fees and commissions that can conflict with a client’s best interests.

The debate as to which financial professionals should carry fiduciary responsibility has been going for years. On April 2016, the U.S. Department of Labor released a Fiduciary Final Rule that said any financial advisors who provide advice regarding retirement plans must meet the fiduciary standard. The rule was proposed for transitional roll out from April 17, 2017 to January 1, 2018. Financial industry groups and the U.S. Chamber of Commerce have filed lawsuits challenging the rule.

The take-home for investors is to understand how their advisor is compensated and any conflicts of interest. Be aware of the fees and commissions you are paying. If it is recommended that you roll money from a workplace retirement plan into an Individual Retirement Account (IRA) weigh the costs and benefits. Steer clear of an advisor who says company match for your retirement account is not as good as an IRA. Understand that fees and commissions can significantly impact investment returns.

Use the FINRA BrokerCheck to find out about a broker’s history http://brokercheck.finra.org/

Florida Master Money Mentor Training

Hillsborough County Extension is offering training to those interested in becoming a Florida Master Money Mentor Volunteer. The four week training is from 9 a.m. to 1 p.m. June 2, 9, 16 and 23 at the County Extension office, 5339 County Road 579 in Seffner.

The program is an opportunity for mentors to learn more about personal finance and then share that knowledge with individuals in the community. No previous financial education or background in financial services is required. Individuals who promote, sell, or endorse financial products or services are not eligible to be volunteers. But they can attend the training to increase their personal financial knowledge.

Prospective mentors will receive approximately 20 hours of training on how to provide basic personal financial mentoring. Training topics include effective communication strategies, budgeting, credit, debt management, and saving & investing for future goals.

Mentors are asked to commit to volunteering at least three hours per week and follow guidelines in regards to reporting, client confidentiality, and providing researched based unbiased information.

Volunteering is a great way to broaden your life experience and meet a diverse group of people. Being a volunteer will also give you the satisfaction of knowing you are making a positive impact in your community.

Register online at http://2016fmmm.eventbrite.com by no later than May 24.

For more information, contact Lisa Leslie, Hillsborough County Extension Services at 813-744-5519 x54143 or lesliel@hillsboroughcounty.org

The University of Florida Extension serves to provide the infrastructure for this program throughout the state of Florida, thanks to a gift from Bank of America.

Personal Finance Benchmarks: Do You Know Your Numbers?

Financial ratios and comparing to general benchmarks are a tool to analyze your financial situation. They can be a good way to determine strengths and weaknesses and can help
develop a realistic financial plan.

Below are some common ratios and benchmarks.  These benchmarks are just a starting place. Your specific situation, goals, budget priorities and stage in the life-cycle need to be considered. Think of these benchmarks as a general guide, not the key to precise happiness.

Emergency Fund: The recommendation is to have enough money in a safe, liquid account so you can cover 3-6 months of non-discretionary expenses. Just how much depends on whether or not you have sick leave, disability  insurance, and income stability. In addition, even 3 months can seem like an overwhelming goal. Start slowly. Saving  $1.50 a day for 2 years will give you a nest egg of $1,095.

Savings to Income Ratio: If a person starts when they are 25-35 and saves & invests 10 – 13% of their income throughout their working years, they have a good chance at a comfortable retirement. A person who starts later in life or who has additional goals such as saving for children’s education will likely need to save and invest more than 10%.

Credit Card Usage Ratio: This is the amount of money charged on credit cards compared to the limits of those cards. This ratio will impact your credit score.
Example: Charge $1,000 a month and total credit card limits are $5,000. Usage ratio = 20%.

Recommended benchmark is to keep usage below 30%. This is true even if you pay the balance in full each month.

Housing Mortgage Ratio: Generally the recommendation is  that no more than 30% of gross income should go for the mortgage. This includes principal, interest, taxes, and insurance (PITI).

Example: Gross income =  $4,000 a month. A monthly payment = $1,200 could be considered affordable. Lenders may allow for 33% ratio. In this example that would  allow for a monthly mortgage payment = $1,320.

Overall Debt: Overall debt includes mortgage debt, student loans, credit cards, and auto loans. The benchmark is 36% or less of gross income.

Example: Gross income  = $4,000. Overall debt goal < $1,440. So with a $1,200 mortgage there is $240 left for other consumer debt payments.

Some lenders will stretch the ratio limit to 42%. In this example that would allow  debt levels  = $1,680.

Assets to Debts: The benchmark for the asset to debt ratio depends on our stage in the lifecycle. Ideally, closer to retirement assets- such as investments and savings- are considerably greater than debts.