Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
Wealthy clients have found a way to avoid paying a key Obamacare tax
Projections from the nonpartisan Joint Committee on Taxation show that revenue from a 3.8% surcharge on investment profit incurred by high-earning taxpayers could be lower than previous estimates, according to the Washington Post. Experts say that the lower revenue could be blamed on tax-saving strategies that wealthy clients use. For example, investors may place their investments in an S corporation and collect the profit from an investment as a salary and not as investment income that is subject to the surcharge.
Paying taxes for a hired caregiver
Taxpayers should know that the nanny tax applies not only to hired caregivers but to all household employees, according to Kiplinger. Clients are required to pay this tax if they directly hired the household employees, had control over how the workers perform their job and paid them more than $2,000. These clients will have to fill out a Schedule H and pay the Social Security and Medicare tax, which is 15.3% of the wages that the household employees received within the year.
This mistake makes you 21 times more likely to mess up your taxes
Taxpayers are 21 times more likely to commit a mistake on their tax return if they file it on paper, according to this Motley Fool report. Filing tax returns electronically helps reduce the chances of making an error that could lead to an audit, as taxpayers get help for doing simple math operations such as addition and subtraction. Another reason to file an electronic return is the help that taxpayers get from tax software to identify tax credits and deductions that are available to them.
Are you overlooking tax deductions?
Taxpayers may be unaware that they qualify for certain tax breaks because of a significant decrease in income or any changes to their financial situation, according to this Yahoo Finance article. Some of the most overlooked tax breaks are the saver's credit, charitable tax deduction and sales tax deduction. Clients can also deduct job-hunting expenses, private mortgage insurance payments and costs for making their homes energy-efficient.
Millennials could qualify for earned income tax credit
The earned income tax credit is a refundable credit available to low- and moderate-income households, and many young workers may qualify, according to TheStreet. "The millennials who are in early career positions — with growing families or making a transition from a two-income family to a single-income family with the arrival of children — may find that they meet the eligibility requirements for the credit," says a tax strategist.
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