1.
A person who files a joint return (other than a return filed solely to claim a refund) cannot be claimed as a dependent. Also, special rules apply to children of divorced parents.
2.
An American Opportunity tax credit ($2,500 maximum per-student, per-year) is available for the first four years of post-secondary tuition, fees, books, supplies and equipment.
A lifetime learning credit ($2,000 maximum per return) is available for post-secondary educational expenses (tuition and fees, plus books, supplies and equipment that must be paid to the institution as a condition of enrollment or attendance). It is available for an unlimited number of years for undergraduate, graduate, professional degree and other students acquiring or improving job skills enrolled in one or more courses.
The education credits phase out at higher levels of adjusted gross income (AGI).
3.
You can deduct up to $2,500 of interest on qualified education loans for college or vocational school expenses, or up to $4,000 of postsecondary tuition and fees, even if you do not itemize deductions. Deductions are phased out based on AGI.
4.
Nondeductible contributions up to $5,000 ($6,000 if age 50 or older) can be made to a Roth IRA. Distributions, including earnings, are tax-free when certain requirements are met. The contribution limit is subject to an AGI-based phase-out.
5.
An IRA deduction up to $5,000 ($6,000 if age 50 or older) is available to all taxpayers who are not covered by an employer-sponsored retirement plan. Taxpayers covered by an employer plan may be eligible for a full or partial deduction, depending on their AGI.
6.
If only one spouse has compensation, a spousal IRA can be set up for the nonworking spouse. Each spouse (working and nonworking) may contribute up to $5,000 or $6,000 (if age 50 or older).
7.
The 10% penalty for withdrawals from an IRA before age 591/2 does not apply if the funds were used for: (a) medical expenses in excess of 7.5% of AGI, (b) certain qualified educational expenses, (c) a first-time home purchase for distributions of up to $10,000 or (d) medical insurance for those who are unemployed for at least 12 weeks. Note: IRA withdrawals are still subject to regular income tax.
8.
A gain exclusion up to $250,000 ($500,000 if married and filing jointly or certain surviving spouses) is available for a sale of a principal residence if the taxpayer(s) owned and occupied the residence for two years of the five-year period ending on date of sale. The five-year period is extended for certain military, foreign service and intelligence personnel. If the home was used other than as your principal residence any time after 2008, some of the gain may be taxable.
9.
Interest on certain U.S. savings bonds issued after 1989 is tax-exempt if proceeds are used for qualified educational expenses of a taxpayer, spouse or dependent, subject to AGI-based phase-out.
10.
Keep receipts supporting tax deductions at least four years.
11.
Improvement costs may reduce taxable gain upon sale of property. Keep records of improvement costs made to all real property at least four years after the property is sold.
12.
If stock or mutual fund dividends are automatically reinvested instead of received in cash, these reinvestments increase cost basis, and reduce gain or increase loss upon sale.
13.
If “allocated tips” are listed on year-end Form W-2, the amount will be subject to both Social Security and income tax unless records (tip log) verify that a lesser amount was actually received.
14.
Child care credit equals up to a 35% of up to $3,000 of child care costs paid for one dependent or $6,000 for two or more dependents.
15.
Individuals covered only by a high deductible health plan (deductible between $1,200 and $5,950 for individual coverage and between $2,400 and $11,900 for family coverage) can make deductible contributions to HSAs. For self-only coverage, contributions are limited to $3,050 ($4,050 if age 55 or older). For family coverage, contributions are limited to $6,150 ($7,150 if age 55 or older).
16.
Taxpayers with losses from passive activities (such as limited partnerships) generally cannot use those losses to offset nonpassive income. However, a taxpayer who actively participates in a rental real estate activity can apply up to $25,000 in rental losses against nonpassive income—subject to phase-out based on AGI.
17.
Cancellation of debt (COD) generally results in taxable income. However, certain exceptions allow individuals to exclude COD income. Exceptions are available for bankrupt and insolvent taxpayers as well as special exceptions for cancellations or reductions of student loans, farm-related loans, mortgages on principal residences and loans related to business real property.
18.
Taxpayers can exclude $2 million ($1 million if MFS) of certain mortgages cancelled because of their financial condition or decline in the home’s value. To qualify, the loan must have been to buy or improve the principal residence (or a loan refinancing such loans).
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