Grossbach Zaino & Associates, CPA's, PC

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Summer Jobs, Teen Taxes


Will your child have to pay taxes on the income earned at a summer job? It’s important to know the guidelines and keep good records.

  • Tips from waitressing, etc., are considered taxable income.


  • Net earnings of $400 or more from self-employment (e.g., babysitting, lawn mowing) are subject to self-employment tax, in addition to income tax.


  • Your child may be taxed on unearned income (dividends and interest) from bank and investment accounts set up under your child’s Social Security number.


  • Your child can claim an exemption from federal income-tax withholding if he or she had no income-tax liability last year and doesn’t expect to owe income taxes this year (e.g., because anticipated earnings are less than the standard deduction for single taxpayers, $6,350 for 2017).

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A Student Loan Tax Break

If you are paying interest on one or more student loans, you may be able to deduct up to $2,500 of the interest annually. The deduction is “above the line,” so you don’t need to itemize to claim it.

General Rules

To qualify, the debt must have been incurred by you, your spouse, or your dependent (as of the time the debt was incurred) for the sole purpose of paying tuition, room and board, and related expenses for post-high-school education. Certain post-graduate and vocational programs also qualify. The student must be a degree candidate carrying at least half the normal full-time course load.

The person claiming the deduction must be legally obligated to make the interest payments and not be another taxpayer’s dependent. Married couples must file jointly to claim the deduction. For 2017, the deduction is phased out if a couple’s adjusted gross income is between $135,000 and $165,000 ($65,000 and $80,000 for single filers).

Home Equity Loans

Taxpayers who choose to use a home equity loan for higher education expenses also may be able to deduct the interest on their loans. Generally, interest on a home equity loan may qualify for an itemized deduction if the underlying debt doesn’t exceed $100,000 ($50,000 for a married taxpayer filing separately) and all mortgages on the home do not exceed the home’s fair market value.

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Renting Out a Vacation Home?

Do Some Planning 

Renting out a second home can help defray the cost of owning and maintaining the property. And there may be valuable tax benefits from the rental arrangement as well. Here are some things to think about if you are going to rent out a vacation property.

Two Week Rule 

Your rental income won’t be taxable as long as you limit the number of rental days to 14 or fewer each year. In this situation, you won’t be able to deduct your rental expenses (other than property taxes and qualifying mortgage interest).

More Than 14 Rental Days

Once you exceed 14 rental days, all rental income becomes taxable to you. But you may deduct various rental expenses. There are different limits on rental deductions depending on your personal use of the home.

  • All expenses associated with renting out the property, such as utilities and maintenance, are potentially deductible if you limit personal use of the home to no more than the greater of (1) 10% of the total number of days the home is rented or (2) 14 days. However, if there’s a rental loss, the tax law’s passive activity rules may limit your loss deduction.
  • Where personal use exceeds the 10% or 14 – day threshold, your tax deductions for rental expenses generally will be limited to the amount of rental income you collect. No loss is allowed.


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Keep This, Not That

When you’re gathering your tax information this year, you may run across old information and wonder whether it’s okay to discard it. In general, you should retain supporting documentation for a minimum of three years after the date you file your return (or its due date, if later) — six years is safer. And there are some items you should never throw away. Here are some guidelines.


  • Copies of federal and state income-tax returns — indefinitely
  • Detailed information used to prepare your return, such as W-2s, 1099s, K-1s, receipts, and canceled checks — for six years
  • Records of investment and real estate purchases — for six years after you sell the investment or property

Once you have verified the accuracy of your W-2, there is generally no need to retain your old pay stubs. However, you should keep your year-end or final pay statement if you’ve had potentially tax-deductible amounts withheld from your pay, such as charitable donations, medical insurance premiums, or union dues.

Even when you no longer need your records for tax purposes, you might need them for other reasons. For example, your insurance company may require you to have certain records to substantiate a claim.

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Back to the Drawing Board

It’s May. Your tax return has been filed. So what’s next? If you’re hoping to pay less tax in the future, your best move may be to go back to the drawing board. Using your 2016 return and what you tell us about your current financial picture as a guide, we can help you identify potential tax-reducing strategies for 2017 and beyond. Here are a few ideas to get you started.

Save for Retirement

Making pretax contributions to a 401(k) or 403(b) plan sponsored by your employer reduces the amount of your taxable wages — and the amount of income tax withheld from your paycheck. Your deferrals, along with earnings from investing the deferrals, are not taxable until the money is distributed to you.

As a 401(k), 403(b), or 457 plan participant, you may also have an opportunity to make after-tax “Roth” contributions. Making Roth contributions won’t save you taxes upfront. The potential advantage comes later, after a five-year period passes, beginning with the year you made your first Roth contribution. At that point, any Roth money distributed from the plan is tax free, provided you are at least age 59½ or the distribution is made on account of your disability or death. So, qualifying earnings on your Roth contributions are never taxed.

Think Capital Gains and Dividends

Turning to non-retirement account investments, two types of earnings receive favorable tax treatment: long-term capital gains and qualifying dividends. For 2017, the tax rate on both is capped at 20% (15% or 0% for those in a tax bracket below 39.6%). Because your regular tax bracket could be as high as 39.6%, there may be a substantial tax incentive to earn capital gains and dividends instead of fully taxed short-term gains and interest income. Of course, tax considerations are only one factor to consider in managing your investments.

Find Above-the-Line Deductions

On the expense side of the equation, certain expenses, often referred to as “above-the-line” expenses, are deductible in arriving at your adjusted gross income rather than as itemized deductions. Some examples include: alimony paid, student loan interest, moving expenses, and self-employed health insurance. Limits apply. An above-the-line deduction not only lowers your taxable income, it can help you qualify for various other tax breaks.

A review of your 2017 tax situation may reveal additional opportunities to save taxes. When you’re ready to think taxes, think of us. We’ll be glad to help.

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Tax Concerns for the Self-employed


If you’re in business for yourself, you know how challenging it can be to run your business and keep on top of your tax situation. Here’s a refresher on the tax rules you need to be aware of if you’re a self-employed sole proprietor or are thinking of becoming one.


Income Taxes


As you probably know, sole proprietors do not file a separate federal income-tax return for the business. Instead, they summarize their business income and expenses on Schedule C of their personal income-tax returns.


Be sure to keep complete records of your income and expenses. Deducting all your ordinary and necessary business expenses will help minimize your tax liability. If you have losses, these are generally deductible against your other income, subject to special rules relating to hobby losses, passive activity losses, and activities for which you were not “at risk.”


Self-employment (SE) Taxes


Any self-employed person who has net earnings of at least $400 from the business is subject to SE taxes on those earnings. SE taxes generally track the Social Security and Medicare taxes paid by employees and their employers and are partially tax deductible.


For 2016, the SE tax rates are:


  • Social Security – 12.4% of the first $118,500 of net SE earnings


  • Medicare – 2.9% on all net SE earnings, plus an additional 0.9% on earnings in excess of $250,000 for joint returns, $125,000 for married taxpayers filing separately, and $200,000 in all other cases


Quarterly Estimated Tax Payments


Your net SE income will be taxable whether or not you withdraw cash from your business account. Moreover, you may be subject to penalties if you fail to make appropriate quarterly estimated tax payments.


Home Office Deduction


If you work out of your home, you may be able to deduct a portion of the costs incurred to maintain your home. You also may be able to deduct commuting expenses incurred to travel from your home office to another work location.


Health Insurance Costs


When tax law requirements are met, you may deduct your health insurance premiums as a trade or business expense, including premiums paid for your spouse, dependents, and children under the age of 27.


Retirement Plan


If you don’t already have a tax-favored retirement plan, you may want to consider establishing one. Contributions to the plan would be tax deductible, within certain tax law limits. Types of retirement plans available to sole proprietors include solo 401(k) and simplified employee pension (SEP) plans.

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Know Your Tax Talk

Credits, deductions, withholding, oh my! Tax vocabulary can be confusing. Here are explanations for some common terms that you should know.


Adjusted gross income (AGI). Calculated by taking all of your gross income from taxable sources (wages, dividends, interest, capital gains, etc.) minus specified deductions that are allowed in arriving at AGI, such as qualified retirement plan contributions, alimony payments, etc.


Deductions. Expenses that are subtracted from your AGI. You can take either the standard deduction, an inflation-adjusted fixed amount, or you can itemize deductions by listing specific expenses, such as real property taxes, qualifying mortgage interest, and charitable contributions.


Exemptions. An amount you can deduct for yourself, your spouse (on a joint return), and each dependent.


Taxable income. What’s left after your gross income is reduced by allowable adjustments, deductions, and exemptions.


Credits. Subtracted directly from your tax liability to reduce the amount of tax you owe.