Friday, July 8, 2016

Arizona Tax Credits - Public Schools

Summer vacations are underway but with the 4th of July just passed, most parents and teachers know that means it is close to time to return to school.  For high school students, this means the start of football season, marching band and other extracurricular activities.  For parents of high schoolers, this means money will be spent in athletics fees, participation fees, etc.  It may also mean money to be spent for other expenses such as ACT or SAT tests.

I know very few people that enjoy spending money, but did you know that money paid to K-12 schools in Arizona may be eligible for an income tax credit?

From the Arizona School Tax Credit Publication 707:
"What are qualified activities or qualified programs for the purpose of the public school credit? 

For the purpose of the public school credit, qualified activities and qualified programs include any of the following: 
  • Extracurricular activities 
  • Character education programs
  • Standardized testing fees for college credit or readiness offered by a widely recognized and accepted educational testing organization
  • Preparation courses and materials for standardized testing
  • The career and technical education industry education industry certification assessment "
Extracurricular activities include athletics, band, choir and other similar participation fees.  It may also include field trip or class trip amounts, if paid to the school.  The standardized testing fees and costs must be paid to the school to be eligible.

The amount that is eligible is $200 for single taxpayers (or head of household), $400 for married filing joint taxpayers.  The payment must be in cash/check/credit card and can not be done by in-kind donations (purchased items donated to the school).

The credit is available to reduce your AZ tax liability dollar for dollar up to the amount contributed or the limit for the filing status ($200/$400).  This credit can be used in conjunction with the other Arizona tax credits (Charitable Tax Credit, Foster Care Organizations Credit, Private School Tuition Credit, and Military Family Relief Fund) up to the amount of each of those credit limits (which I will discuss later on another blog post).

Please be sure to check with your advisor to see is this may be of benefit in your particular situation. Look for my additional discussion on the available tax credits to be coming up.

Friday, July 1, 2016

Freedom of Working from Home

As we approach the Fourth of July holiday weekend, in the US we take time to celebrate the declaring of independence of the colonies from Great Britain.  We have many freedoms to celebrate in the US and I wanted to take a moment to point out a huge benefit many Americans enjoy - being able to work from home.

From a personal standpoint, this allows flexibility for self-employed and employees that telecommute for work. You can work in an environment that is as comfortable as you want to make it. Working from home also offers short commutes, casual wardrobes and comfortable rest breaks.

From a tax standpoint there may be some benefits as well but there are some criteria to meet to be eligible for a tax break.  To qualify for the deduction, you generally must maintain a specific area in your home that you use regularly and exclusively in connection with your business. So that means the kitchen table will not qualify as exclusive use.  What’s more, you must use the area as your principal place of business or, if you also conduct business elsewhere, use the area to regularly conduct business, such as meeting clients and handling management and administrative functions. If you’re an employee, your use of the home office must be for your employer’s benefit.

The only option to calculate this tax break used to be the actual expense method. With this method, you deduct a percentage (proportionate to the percentage of square footage used for the home office) of indirect home office expenses, including mortgage interest, property taxes, home owner association fees, insurance premiums, utilities (if you don’t have a separate hookup), security system costs and depreciation (generally over a 39-year period). In addition, you deduct direct expenses, including business-only phone and fax lines, utilities (if you have a separate hookup), office supplies, painting and repairs, and depreciation on office furniture.

But now there’s an easier way to claim the deduction. In just the last couple of years, the IRS has introduced a simplified method, much like the standard mileage rate for business use of a vehicle. Under the simplified method, you multiply the square footage of your home office (up to a maximum of 300 square feet) by a fixed rate of $5 per square foot. You can claim up to $1,500 per year using this method. Of course, if your deduction will be larger using the actual expense method, that will save you more tax.

I recommend discussing this topic with your tax advisor to see if this is applicable to you.  Also many folks remember this being a RED FLAG when claimed on a tax return but with the advancement of technology and many home based businesses, this has become more common of a deduction.  It is important to make sure that you document the usage of the space and be sure you qualify for the deduction.

Have a happy and safe Fourth of July holiday!