Latest news with #Form1040
Mint
6 days ago
- Business
- Mint
Donald Trump's tax cuts could boost your paycheck—Here's a breakdown
President Trump's new tax law gives special breaks to workers, seniors, and homeowners — but only if your income is low enough. For example, servers and bartenders won't pay taxes on up to $25,000 of tips if they make under $150,000 a year (or $300,000 for married couples). Overtime pay gets a $12,500 deduction under the same rules. Seniors aged 65+ can claim a $6,000 tax bonus if they earn less than $75,000 ($150,000 for couples). These cuts start this year and expire in 2028. However, people earning above these limits get smaller deductions or none at all, so checking your income is crucial. Homeowners in high-tax states like New York or California get relief too. The law raises the deduction for state and local taxes (SALT) from $10,000 to $40,000 through 2029, but only for households earning under $500,000. If you buy an American-made car, you can deduct up to $10,000 in loan interest if your income is below $100,000 ($200,000 for couples). All these breaks depend on your 'modified adjusted gross income' (MAGI), which usually matches the number on line 11 of your tax return. The IRS uses this to decide who qualifies, and most people won't need complex calculations. The one piece of good news is that for 90% of taxpayers, MAGI is the same as your adjusted gross income (AGI). That's your total pay minus things like retirement contributions or student loan interest. Only Americans with foreign income or housing expenses might see a difference. To see if you qualify for the new breaks, check last year's tax return (Form 1040, line 11). If you're close to the income limits, you still have time to lower your MAGI for 2025. Putting money into a 401(k), IRA, or health savings account (HSA) reduces taxable income. Seniors over 70 years can also donate to charity directly from an IRA to shrink their MAGI. These tax breaks take effect this year! If your income is slightly too high, consider boosting retirement savings before December 31. Contributing $5,000 to a 401(k) could drop your MAGI below the $150,000 tip/overtime cutoff. But remember: Some cuts won't last. The overtime and tips deductions vanish after 2028, and the SALT cap drops back to $10,000 in 2030. While wealthy Americans get bigger permanent tax cuts, the new breaks help middle earners most. Still, critics warn Medicaid and food aid cuts could hurt low-income families, offsetting their small tax savings.
CNBC
02-07-2025
- Business
- CNBC
Why Trump tax deductions — for tips, car loans and more — may not carry large benefits for low earners
Tax cuts are the centerpiece of a massive legislative package championed by President Trump and passed Tuesday by Senate Republicans. Many new tax breaks in the bill — on auto loans, tips and overtime pay, and for older Americans — are structured as tax deductions. How much money you save with tax deductions, which reduce your taxable income, depends on your bracket. Deductions are more valuable to higher-income households and less beneficial for lower earners, experts said. "The most modest-income workers can't use a tax deduction at all," said Carl Davis, research director of the Institute on Taxation and Economic Policy, a left-leaning policy think tank. Senate Republicans passed the legislation with the narrowest of margins on Tuesday. It now heads to the House, where its fate is uncertain. The Republican bill, originally called the One Big Beautiful Bill Act, has more than $4 trillion of net tax cuts, according to the Committee for a Responsible Federal Budget. Among them are several new tax deductions: If enacted as drafted, these deductions would be temporary, available from 2025 through 2028. They also carry various limitations such as income restrictions. A tax deduction reduces the amount of income that's subject to tax, i.e., taxable income. You can find your taxable income on line 15 of your Form 1040 individual income tax return. While the proposed tax deductions may sound large, there are a few reasons why low earners may not see much or any benefit, experts said. Households need some taxable income to benefit from a deduction, said Garrett Watson, director of policy analysis at the Tax Foundation. Low earners already get a large financial benefit from the standard deduction, Watson said. The standard deduction is worth up to $15,000 for singles and $30,000 for married couples filing jointly in 2025. (If the bill passes as drafted, it would raise the standard deduction to $15,750 for single filers, and to $31,500 for married filing jointly.) More from Personal Finance:Senate Republicans' spending bill boosts child tax creditSenate bill touts tax help for seniors on Social SecurityTrump megabill axes $7,500 EV tax credit after September To get a financial benefit from the new tax deductions for car loans, seniors, tips and overtime, a household's taxable income would have to exceed these thresholds, experts said. More than a third, or 37%, of tipped workers in 2022 had incomes low enough that they didn't owe federal income tax, according to an analysis last year by the Budget Lab at Yale University. That means a "meaningful share" of tipped workers wouldn't benefit from a tax deduction on tips, it said. The relative value of tax deductions depends on a household's tax bracket, experts said. There are seven federal income-tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Higher-income households generally fall in a higher tax bracket — any therefore can get a bigger benefit from reducing their taxable income. "If you're in a somewhat higher bracket, every dollar you get to deduct is worth more to you because that dollar would have been taxed at a higher rate," Davis said. Let's say two households — one in the 22% bracket and one in the 10% bracket — each deduct $1 of tipped income. The former gets a tax benefit worth 22 cents, while the latter gets one worth 10 cents, Davis said. There are other reasons why households may not be able to max out certain deductions. For example, households would need a car loan of roughly $112,000 or more to generate $10,000 of annual interest on a typical six-year loan, Jonathan Smoke, chief economist at Cox Automotive, an auto market research firm, told CNBC last month. Only about 1% of new auto loans are this big, according to Cox Automotive data. By comparison, the average new car buyer would be able to deduct $3,000 of interest from their taxable income in the first year of their loan, Smoke said. A deduction of that size would yield an average total tax benefit of about $500 or less in the loan's first year, he said. There are, however, two elements of the tax breaks that seek to better target benefits to low- and middle- income households. For one, they're all what's known as "above-the-line" deductions. This means households can claim them regardless of whether they use the standard deduction or itemize their deductions. High-income households may be more likely to itemize, meaning they detail a list of eligible deductions on their tax return. Taxpayers itemize when the deductions add up to more than the standard deduction. Some deductions are only available to taxpayers who itemize, such as for "SALT" (or, a deduction for state and local income taxes and property taxes) or mortgage interest. Also, the new deductions have income limits, barring them from the highest-income households. For example, the overtime deduction's value starts to decline once an individual's income exceeds $150,000 ($300,000 for married couples filing jointly). The value of the senior "bonus" falls once income exceeds $75,000 ($150,000 if married and filing jointly). Tax credits are another mechanism to lower a household's tax bill. A tax credit reduces your tax liability dollar-for-dollar. (If you claim a $1,000 credit, it can reduce your tax bill by $1,000.) Credits have the same dollar value regardless of your tax bracket. Unlike deductions, the "benefits from tax credits are skewed toward lower- and middle-income households," the Congressional Budget Office wrote in 2021. Credits can be "refundable" or "nonrefundable": The largest credits for individuals as measured by total government outlay are the child tax credit, earned income tax credit and the premium tax credit for health insurance, CBO said. The Senate legislation would permanently raise the maximum child tax credit to $2,200 starting in 2025, and would index this figure for inflation starting in 2026. The credit is partially refundable: Low earners can get up to $1,700 as a tax refund. But currently, 17 million children do not receive the full $2,000 child tax credit because their families don't earn enough and owe enough taxes, according to the Center on Budget and Policy Priorities.
Forbes
17-06-2025
- Business
- Forbes
6 Above-The-Line Tax Deductions For Those Who Claim Standard Deduction
When you file your taxes, one of the biggest decisions is whether you should claim the standard deduction or go through the chore of itemizing your deductions. With the standard deduction of $15,000 for individuals and $30,000 for married couples filing jointly, itemizing requires a significant sum of deductions to make it worth it. But did you know there are 'above-the-line' deductions that you can claim even if you claim the standard deduction? Many of these deductions are claimed on Schedule 1 of your Form 1040, which can be a guide to finding these above-the-line deductions. Here are a few of the more uncommon ones: If you had to withdraw money early from a certificate of deposit (CD), you likely paid a penalty depending on the terms of the CD. For many CDs, you pay the equivalent of 6-months or more of interest back to the bank if you have to access your funds early. Fortunately, this is deductible on Line 18 - Penalty on early withdrawal of savings. If you paid student loan interest, you could get a tax break on up to $2,500 of payments as long as you qualify. There are income restrictions. You do not qualify if you have income over $80,000 for single filers and $165,000 for those married filing jointly. This can be found one Line 21 - Student loan interest deduction. If you were divorced before the start of 2019, your alimony payments are deductible from your income on Schedule 1 of your Form 1040, Line 19a - Alimony paid. If your agreement was established amended in or after 2019, unfortunately it will no longer be deductible. If you are a teacher, you can deduct up to $300 in unreimbursed expenses spent in your classroom. You must have worked at least 900 hours at a qualifying elementary or secondary school. This can be found on Line 11 - Educator expenses. If you are an active-duty service member and had qualifying moving expenses that were not reimbursed, you can claim them on Line 14 - Moving expenses for members of the Armed Forces. It covers household items, housing, storage and travel but does not include meals.
Yahoo
02-06-2025
- Business
- Yahoo
How sports betting taxes work and what you might owe
Sports betting only became legal in the United States in 2018 after the U.S. Supreme Court struck down a 1992 federal ban and ruled that states could individually determine what forms of gambling were legal within their boundaries. This opened the floodgates for various state legislatures to decide whether to allow sports betting. Currently, 40 states and the District of Columbia authorize the practice, and 34 permit online sports betting, according to the American Gaming Association. This has tax implications for millions of gamblers — who are also taxpayers. There is no ambiguity here, according to tax experts. 'Broadly, winnings from sports betting are taxable income,' said April Walker, senior manager for Tax Practice and Ethics with the American Institute of CPAs. Sports betting winnings are taxed under the Internal Revenue Service's designation for gambling income and losses. If your winnings total $600 or more and are at least 300 times the amount wagered, then a payer, such as a casino, is required to issue you a Form W-2G. While supplying the form is the responsibility of the payer, Walker noted, you are still liable for reporting and ensuring taxes are paid on those sports betting winnings, whether or not you receive the form. If you're dealing with a mobile sports gambling provider, like DraftKings or FanDuel, the reporting standards are a little different, according to New England-based accounting firm Baker Newman Noyes. If you reach net earnings above $600 or 300 times your original wager, you can also receive a Form 1099-MISC from an online sports wagering organization that will report your net earnings from the previous tax year. Net earnings would be calculated as your cash winnings minus any cash entry fees and adding any cash bonuses received from the platform. Individual tax filers must report total gambling income as 'Other income: gambling' on line 8b of Schedule 1, 1040. The only exception is if you are filing as a professional gambler, meaning someone 'engaged in sports betting primarily for profit rather than only as a hobby,' per the Journal of Financial Planning. In this case, the filer would use Form 1040, Schedule C to report profit or loss from a business, and they would note winnings as revenue and be able to deduct their losses directly. Self-employed filers — in this case, professional gamblers — must pay self-employment tax, which is 15.3 percent, half of which is subject to deduction, for Social Security and Medicare. This embedded content is not available in your region. To answer the tax rate question, we must work backward. Taxpayers whose winnings exceed $5,000 and 300 times the amount wagered will automatically have 24% of their total payout withheld by the payer, according to Walker. This rate could be higher in states that have additional income tax, in which case the 24% federal rate would be withheld on top of the state's personal income tax rate. Still, when it comes time to file your income taxes, this withholding doesn't ensure you've paid the required amount of tax. Rates range from 10% to 37%, depending on your total income, so based on what tax bracket you end up in at the end of the tax year, you'll either get a refund or have to pay out a higher amount from your winnings. Read more: How tax withholding works Perhaps the most pivotal — and confusing — part of understanding how to report gambling income on your federal income tax return is factoring in your losses. The correct method, according to Walker, comes down to what the IRS refers to as 'sessions.' This philosophy comes from a 2015 IRS notice on slot machine play, indicating that total wins and losses need to be calculated by the day they were made. Each day counts as an individual session, so rather than net your total losses against your total winnings, you will need to calculate the end amount of each session, or day, and determine which days were a loss and which days ended with winnings. Still, the only way that losses can be offset against gambling winnings is if you itemize your deductions rather than take the standard deduction, which is $15,000 for single tax filers on 2025 taxes. Using the session method, you could add your total losses on Schedule A, line 16 as gambling losses. Whether you can itemize your deductions to offset your winnings when it comes to state income tax depends on which state you're filing in. Nine states, including North Carolina, Connecticut, and Rhode Island, do not allow itemized deductions for gambling losses, per an article in the Journal of Financial Planning. Even professional gamblers can only offset their total winnings with their losses and get to zero. There is no tax refund for losses that exceed the total amount of winnings, Walker said. To minimize sports betting taxes, the key is having a demonstrable record of all of your wagers, where and when they occurred, proof that they occurred (like receipts and tickets), and evidence of your total amount of winnings and losses. This will be particularly useful if you find yourself audited by a tax authority. 'Gambling has been around for quite a while, and so the rules on that have not changed,' Walker said. 'The difference is that there might be more people who are doing it on a regular, daily basis, and I would encourage them to understand how important it is to do their bookkeeping so they are not having to scramble after the fact and if they are able to itemize, and take advantage of all of their losses.'
Yahoo
26-05-2025
- Business
- Yahoo
Schedule E: How to use this tax form to report rental income and losses
If you own rental property, you'll need to file a Schedule E tax form with the IRS to report rental income income or losses. Schedule E is filed along with your Form 1040 individual income tax return. While having rental income and losses is a common reason for filing a Schedule E — and what we'll focus on here — you'll also need to complete this form for other sources of supplemental income, including from royalties, partnerships, S corporations, estates, trusts and residual interests in real estate mortgage investment conduits (REMICs). Schedule E is a tax form that individual taxpayers must file to the IRS along with their Form 1040. Taxpayers need to complete a Schedule E to report supplemental income and losses, including from rental real estate and other sources. Schedule E is one of several different types of tax forms that taxpayers may need to complete to calculate different types of income, credits and deductions. Schedules provide additional information beyond what's included on Form 1040. Learn more: Current tax brackets and federal income tax rates Taxpayers who own rental real estate must file Schedule E to report any income or loss generated from their property. On this tax form, you'll detail all of the income and expenses for each of your rental properties. But Schedule E is only applicable to individual taxpayers, not people who are in the business of renting property (those taxpayers must instead file Schedule C — more on this below). While rental real estate is a common reason why taxpayers have to file Schedule E, there are other income situations also captured on this form: royalties, partnerships, S corporations, estates, trusts and residual interests in REMICs. If you file your taxes electronically with tax preparation software, you'll be prompted to fill out Schedule E based on your answers to questions about sources of income. However, if you still file taxes by paper, there isn't a specific prompt related to Schedule E on Form 1040. The closest mention of Schedule E on the 1040 is line 8, which instructs taxpayers to enter 'additional income' from Schedule 1. Schedule 1 is where income from Schedule E is entered, as well as income from other forms and schedules, and then that income flows to line 8 of the 1040. Whether you need to file Schedule E or Schedule C depends on whether you're renting out property as a business or as a supplementary source of income. When to file Schedule E: If you're renting out part of your home or other property that you own, and it's a passive source of income, then you should file Schedule E. When to file Schedule C: If you rent out property as a business, such as short-term vacation rentals, then you should file Schedule C if you're actively involved in providing services to tenants. For more information, check out the IRS instructions regarding rental income and expenses. Need an advisor? Need expert guidance when it comes to managing your investments? Bankrate's AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals. Schedule E is a two-page form that is split into five parts, including sections applicable to four specific sources of income and a summary section. You only need to complete the parts relevant to your income situation. If you own rental real estate, you will need a variety of details about your rental property handy, including information about your various expenses. This is the applicable section for taxpayers who have rental real estate, though it also covers income or loss from royalties. To complete this section, you will need to provide several basic details about the property, including: The physical address of each applicable property The type of property The number of rental days and days used for personal use Income, and specifically rents received Expenses, including insurance, management fees, utilities, taxes, and more If you are completing this section for income or losses related to royalties, you will need to provide information about royalties received and any applicable expenses. To complete Part I, you will sum the total income or loss from rental real estate and royalties and, if no other parts of Schedule E are applicable to you, you can enter this total on line 5 of Schedule 1. This section needs to be completed by taxpayers who are a member of a business partnership or a shareholder of an S corporation. You will need several basic details to complete Part II of Schedule E, including: The name of the entity The employer identification number (EIN) of the partnership or S corporation A breakdown of whether the relevant income and loss was passive or non-passive, which refers to whether you materially participated in the business To complete Part II, you'll need to refer to Schedule K-1, the form you receive from organizations in which you have a financial interest. If you have a passive loss, you will also need to complete Form 8582, and if you have a Section 179 deduction, you will need to complete Form 4562. You need to complete Part III if you're a beneficiary of a trust or an estate and have an income or loss to report. To complete Part II, you will need the following information: The name of the estate or trust The EIN A breakdown of whether the relevant income or loss was passive or nonpassive As with Part II, you will need to refer to the Schedule K-1 that you received, if applicable, and will need to complete Form 8582 if you have a passive loss. You will need to complete Schedule E's Part IV if you're an investor in a real estate mortgage investment conduit, or REMIC, which is a structure for pooling mortgages. To complete this information, you will need to refer to the Schedules Q that you received from the REMIC, along with: The name of the REMIC The EIN Information from Schedules Q, including excess inclusion, taxable income or net loss, and income If you completed more than one section on Schedule E, then in Part V you will total the income or loss from these various sources. You then enter that total on line 5 of Schedule 1. See this IRS page for more details on how to fill out Schedule E. 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