Marianela del Pino-Rivera says Latinos have the tendency to get their taxes paid by “fulano de tal” who was recommended by their cousin’s friend’s brother. She says this is a no-no.
Del Pino-Rivera has more than 25 years of experience as a certified public accountant – advising clients on all aspects of accounting, taxation and financial management. She is on the Board of Directors of the Maryland Association of CPAs and received the Association’s Public Service Award in 2005 for her extensive work running a tutoring center in Old Bowie, MD. She says her passion is financial literacy for all, especially Latinos and youth, and she travels to local high schools, colleges, and women’s organizations to hold seminars on financial literacy and taxes.
Here are del Pino-Rivera’s top 10 tax tips so you can get your best return, the right way:
1. Go to a reputable tax preparer. – Seek a CPA or an enrolled agent to assure proper training and continuing education. A CPA needs to pass a rigorous exam, obtain at least four-year college degree, and take 80 hours of continuing education every two years. An enrolled agent has passed an exam given by the IRS and must take 72 hours of continuing education every three years. Ask trusted friends and colleagues for recommendations or go to your state’s CPA society web page.
2. Take advantage of employer retirement plan matches. – Many employers offer retirement plans and will contribute up to a certain percentage of your salary. Usually, you will get this match only if you have contributed a comparable amount. If you don’t contribute to the plan, you are leaving money on the table (sometimes up to 6 percent of your salary).
3. In this difficult job market, take advantage of educational opportunities. – If your employer wants to send you for training, take advantage of the opportunity. Also, investigate whether your employer offers educational benefits (tax free payment of tuition). Even if your employer doesn’t pay, you may be eligible for the “lifetime learning tax credit” which can be up to 20 percent of the course fee (up to $2,000 per tax return). There are the requirements.
4. Take advantage of Section 125 plans at work. – These allow you to set aside funds pre-tax to pay for child care expenses (up to $5,000) and un-reimbursed medical expenses. Budget carefully, since these plans are mostly “use it or lose it.”
5. Health insurance deductions – If you are self-employed and paying for health insurance, you may deduct amounts paid for health insurance (including long-term care insurance) for yourself, spouse, dependents and children under age 27 (even if that child is not your dependent). The plan must be established under the business, and the business must generate net income to cover the expense. The health insurance also includes Medicare payments deducted from social security for a retired person who has their own business. For those in between jobs, who are doing freelance work (and are self-employed), being able to deduct their health insurance is a great tax break.
6. Moving Expenses – You may be able to deduct expenses of moving, including your household goods and travel to a new home, if the move is a result of a new job location. There is a distance and time test to be met.
7. Health Savings Account (HSA) to reduce the cost of health insurance – If medical premiums are very high, look into a high deductible medical plan combined with an HSA account. Health insurance is so expensive right now. Sometimes if you can deal with a higher deductible you can get a lower insurance. Set up the HSA account (like an IRA account) and combine it with high deductible medical plan, you can save a lot of money that way. Perfect for unemployed, freelancers and small business owners.
8. For those that volunteer – If you itemize deductions and volunteer at a non-profit, keep track of your out of pocket expenses since these can be deducted as charitable donations. For example, if you volunteer at your church and buy food for the food pantry, or drive to deliver meals to the home bound, you can deduct the cost of the food purchase and 14 cents per mile for delivering the meals (you must keep the receipts and record of the miles driven). No deduction is allowed for the value of your time, the rewards for that are not reflected on your tax return.
9. For caretakers of an elderly parent – If you provide more than half of your parent’s support, you may be able to claim the parent as a dependent, and you may qualify as head of household, if you’re unmarried and meet the other tests. These breaks can help offset the financial burden of providing the care.
To claim a parent as a dependent, you must provide more than half of your parent’s support and your parent must have income of less than $3,700, (do not include the Social Security payments the parent receives). Also, your parent does not have to live with you. If you pay for home health care or adult day care costs, you can claim a dependent care tax credit. Also, you can include medical expenses paid for your parent along with their own medical expenses on Schedule A.
10. Contribute to an IRA – If you had a low earnings year and can afford it, look into the effect of making a contribution to an IRA for 2011 (you have until April 15, 2012 to fund it).
The tax credit is calculated based on a percentage of your retirement contributions. The maximum credit is $1,000 for unmarried filers and $2,000 for married filers. The percentage is determined by your adjusted gross income and your filing status and will be 10 percent, 20 percent or 50 percent. Not a bad rate of return! Have your tax preparer run the numbers before you make any contributions. I usually recommend a ROTH IRA to my clients in this situation.
Del Pino-Rivera recommends this link for financial literacy topics if you have more questions.
Originally published on NBCLatino.com.