Linda @ The Cents of Money
Many consider filing taxes and getting their financial affairs in order as tax season rolls around. However, some of the most essential tax questions may not be obvious. Knowing the answers to these less frequently asked questions can save money and help you make better financial decisions.
1. What Are the Tax Implications of Working From Home?
Due to the pandemic, many people have been working from home for over a year. If you’re one of them, you might wonder if there are any tax implications to working from home. The answer depends on your situation. You can’t deduct home office expenses on your taxes if you’re an employee. However, you can claim a home office deduction if you’re self-employed. Consult with a tax professional to determine what expenses are deductible.
2. How Can I Reduce My Taxes Through Charitable Donations?
Donating to charity not only helps others, but it can also reduce your tax bill. However, you must ensure you donate to a qualified charitable organization to take advantage of the tax deduction. Additionally, you’ll want to keep accurate records of your donations to claim the deduction on your tax return. Consult with a tax professional to determine how much you can deduct and what documentation you need.
3. Can I Deduct Student Loan Interest on My Taxes?
If you have student loans, you can deduct the interest you paid on your taxes. The maximum deduction is $2,500, subject to income limits. To claim the deduction, you must meet specific criteria, including using the loan to pay for qualified education expenses. Consult with a tax professional to determine your eligibility for the deduction and how much you can claim.
4. What Are the Tax Implications of Owning Rental Property?
If you own rental property, you need to understand the tax implications. Rental income is taxable, and you must report it on your tax return. However, you can deduct certain expenses related to the property, such as mortgage interest, property taxes, and repairs. Additionally, you may be able to claim depreciation on the property. Consult a tax professional to determine what expenses are deductible and how much you can claim.
5. How Can I Maximize My Retirement Savings Through Tax-Advantaged Accounts?
Saving for retirement is essential, and tax-advantaged accounts can help you maximize your savings. Several accounts include traditional and Roth IRAs, 401(k)s, and SEP IRAs. Each account has different contribution limits and tax advantages. Consult with a financial advisor to determine which accounts are right for you and how much you can contribute to each account.
6. Can I Claim My Adult Children as Dependents on My Taxes?
If you have adult children who are not supporting themselves, you may be able to claim them as dependents on your taxes. However, specific criteria, such as the child’s age and income level, must be met. Additionally, if your child is married, you may not be able to claim them as a dependent. Consult a tax professional to determine if you can claim your adult child as a dependent.
7. What Are the Tax Implications of Receiving Unemployment Benefits?
You must report income on your tax return if you received unemployment benefits. Unemployment benefits are taxable, so you must pay taxes on that income. Additionally, you may need to pay estimated taxes throughout the year to avoid penalties. Consult with a tax professional to determine how much you’ll owe in taxes and how to make estimated tax payments.
8. Can I Deduct Medical Expenses to My Taxes?
If you have significant medical expenses, you may be able to deduct those expenses from your taxes. However, you’ll need to meet specific criteria, including exceeding a certain percentage of your adjusted gross income. Additionally, only certain medical expenses, such as medical and dental expenses, prescription medications, and transportation to medical appointments, are deductible. Consult with a tax professional to determine if you’re eligible to deduct your medical costs and how much you can claim.
9. What Are the Tax Implications of Selling Stocks?
You must report that income on your tax return if you sold stocks in the previous year. The tax implications will depend on how long you held the stocks and how much you earned from the sale. If you hold the stocks for more than a year, you’ll pay long-term capital gains tax, generally lower than short-term capital gains tax. Consult with a tax professional to determine how much you’ll owe in taxes and how to report the income on your tax return.
10. How Can I Reduce My Taxes Through 529 Tuition Savings Contributions?
Like a traditional 401(k) retirement account, after-tax contributions to a college education 529 college savings plan can help you reduce your tax bill. While they are not tax deductible on the federal level, they may be deductible on the state level in some states. Consult with a financial advisor to determine whether your state has tax advantages for these contributions.