self employment and taxes - what do you do?

Posted on: 27 March 2015

You don't need to give all your money to the Internal Revenue Services to cover tax liabilities. If you were generous and gave to charity, the IRS rewards you with tax credits. You also get credit if you or a family member paid tuition for secondary education. Don't miss out on tax credits that might put money back in your pocket.

Education Credits

Education tax credits can significantly reduce your tax liability.  Check out these three credits to see if you can apply them to your tax situation.

• The American Opportunity Credit extended to 2017

This credit was slated to expire in 2013, but it's extended to 2017. It replaced the Hope Credit, and you can claim up to 2,500 for the first four years of secondary education. 

• No Time Limit for Lifetime Learning Credit

The American Opportunity Credit provides credit for four years of college, but the Lifetime Learning Credit does not limit the number of years you can claim it. You can claim up to $2,000 on your return.

• Tuition and fees reduce your income

You can reduce your income subject to taxes by up to $4,000 if you paid tuition and fees for your child, spouse or yourself. You don't need to itemize to claim this credit because you claim it by adjusting your income directly. Couples filing separately and those who can be claimed by another filer aren't eligible for this credit.

• Claim only one credit per student

Note, however, that you generally can't claim multiple education credits for the same student.  Choose the credit that reduces your tax liability the most. For example, you can claim the Lifetime Learning credit for your higher learning expenses, and claim the tuition and fees credit for your child. 

Medical and Dental Expenses

If your family spent a lot of money on medical and dental care, you can get some financial relief on your taxes. You'll need to itemize your deductions instead of claiming the standard deduction. You can claim this deduction if your healthcare expenses exceeds 10 percent of your adjusted gross income. Medical expenses include preventative care, diagnosis, treatment and cure of illnesses. You also can claim health insurance premiums. But, you can't deduct medical-related fees, such as funeral expenses, medicines and surgery for aesthetic purposes.  

Charitable Non Cash Contributions

Donations to charitable organizations qualify you for tax credits based on the market value of the items you donate. Get a written receipt or confirmation so you can claim your deduction. The deduction amount is typically limited to 50 percent of your gross annual income.  Charitable noncash contributions to any qualified organization in the United States and its properties counts. You also can claim donations to charitable organizations in Canada, Mexico and Israel. You can use the credit to adjust your foregin-earned income in these countries. If you, your spouse or your dependents attended a university or school in Canada and you donated to this facility, you can claim the credit against income you earned in the U.S. 

Deductions for Job Search and New Jobs

If you spent time looking for a job during the tax year, you can deduct your job-hunting expenses. These expenses include food, travel and lodging expenses. When you land a new job, you can claim moving expenses if your new job is at least 50 miles away from your old home.

You can claim this deduction whether you move yourself or hire movers. If you hired movers, deduct the amount you paid the movers. If you moved your belongings yourself, you can deduct 23.5 cents per mile plus toll fees and parking.

Talk with your accountant (like those at Cowan Digiacomo & Associates) to find more ways to reduce your tax liability.