Hillary Clinton is not only running for president, she’s also providing voters some tax advice.
OK, the Democratic nominee for the White House isn’t actually dispensing tax tips on the campaign trail. But by releasing many years of her personal tax filings, she gives us a look at some tax-filing strategies that she and the former President Bill Clinton use.
Here are 12 tax moves gleaned from the Clintons’ tax returns, focusing on the 2015 forms Hillary made public on Aug. 12. Taxpayers of all political persuasions might be able to use at least some of these strategies to reduce their own tax bills.
Hillary Clinton, who filed an annual joint return with her husband, ended up owing Uncle Sam $3.6 million for the 2015 tax year. They paid nearly $4.7 million in withholding and estimated taxes last year.
That overpayment meant the Clintons were due a refund, which they chose to apply to their 2016 tax bill.
You, however, might want to adjust your withholding so that you don’t have too much withheld. This will give you the use of your money throughout the year, rather than waiting for a refund when you file.
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Make estimated tax payments
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Most of the Clintons’ $10.6 million income in 2015 came from speeches that the former secretary of state and former president gave, along with book royalties and some investment earnings. This type of income is not subject to withholding, so the Clintons paid estimated taxes on the earnings.
These 4 extra tax payments each year are required of anyone who makes money that is reported on 1099 forms instead of W-2s. The IRS prefers you calculate how much you’ll get during the tax year and then make 4 equal payments, using Form 1099-ES or electronically paying, by the 15th of April, June, September and January of the next year.
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Tally all your Schedule C expenses
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When you earn income outside of a wage-paying job, you report those earnings on Schedule C that you file with your 1040. The Clintons filed 6 Schedule Cs in 2015, 3 for Hillary’s self-employment earnings and 3 for Bill’s independent contractor income.
On most of these documents, the Clintons claimed expenses related to their earnings — primarily travel expenses.
If you have self-employment income, either as your main earnings source or a sideline to supplement your wage-paying job, be sure to claim all the eligible expenses to reduce your taxable Schedule C amount. In addition to travel, meal and entertainment costs, you can claim such deductions as:
Self-employment income means that the Clintons also had to pay self-employment tax. This is what independent contractors pay into Social Security and Medicare. Workers who are paid by someone else see these amounts withheld as payroll taxes on the check stub line shown as Federal Insurance Contributions Act, or FICA.
Self-employment, or SE, tax is required when you make $400 or more as an independent earner. You pay this tax on Schedule SE, covering both the employer and employee portions, which together account for 15.3% of income. But, like the Clintons did, you then can deduct half of the SE tax you pay as an above-the-line deduction on your Form 1040.
Taxpayers are allowed to claim deductions to help reduce their tax bills. Most use the standard deduction. Some, like the Clintons, decide to itemize.
If you itemize, gather all your receipts. You’ll need them to get the most out of your Schedule A claims. In some cases, you need a certain amount before you can claim the costs. For example, most filers must have expenses that exceed 10% of their adjusted gross income, or AGI, to claim medical deductions.
The documentation also is important in claiming charitable contributions. You don’t have to send the donation receipts with your return, but if the IRS questions your charitable deductions, they’ll need to prove your charity claims are legit.
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Decide which state taxes to claim
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Most states collect income tax from their residents. The one positive thing about paying this money is that you can deduct it as an itemized expense on your federal tax return.
As New York residents, the Clintons paid a lot of state income tax, so that amount was a big help in reducing their multimillion-dollar tax bill. But if your amount of state income tax is not that much, or you live in one of the few states with no wage income tax, you get the option to claim your state sales taxes instead.
Compare both income- and sales-tax deduction numbers and claim the one on line 5 of Schedule A that gives you a better tax break.
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Pay attention to qualified dividends
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Investment earnings accounted for part of the Clintons’ 2015 income. In addition to interest, they also received qualified dividends.
The designation as “qualified” is key. These dividend payments receive favorable tax treatment. Rather than being treated as ordinary income that can be taxed at a possible top tax rate of 39.6%, qualified dividends are taxed as the lower capital-gains tax rate. For the high-earning Clintons, that’s 20%. For those of us who make much less, the capital-gains tax rate typically is 15% and in some cases could be 0%.
Pay attention to the Form 1099-DIV forms that you receive. They will show in box 1b how much of your dividends qualify for the lower tax rate.
Investing in the stock market can be nerve-racking. However, if you pick solid stocks, you can weather the ups and downs and after holding your assets for more than a year, pay the lower long-term capital gains tax rate on your profit.
But even better is being able to zero out your capital gains, or at least reduce them. You can do just that when you sell any not-so-good investments, and use those losses to offset your gains.
If you have more losses than gains, you can carry those losses forward to reduce capital gains in future tax years. That’s what the Clintons have been doing with a $726,761 capital loss they first claimed on their 2008 taxes.
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Don’t waste excess capital losses
Carrying forward excess capital losses is a good tax-reduction tactic. But you also can use some of those bad investments to lower the amount of your ordinary income that’s subject to tax.
In those tax years when you have more capital losses than gains, you can claim up to $3,000 of your losses on the first page of your Form 1040 to help get to a smaller AGI amount.
And you can carry forward those excess losses against ordinary income indefinitely in $3,000 annual increments, like the Clintons have done since 2008, until the loss amount is fully offset.
Tax filers typically are allowed an exemption amount to help reduce AGI. This amount, which is adjusted annually for inflation, also can be claimed for the taxpayer’s spouse and any dependents listed on a return.
Some taxpayers, however, don’t get the full exemption amount. Others don’t get to claim any exemptions at all. These filers face the lower-or-no-exemption situation because they make too much money, according to the personal exemption phase-out provision that was reinstated in the tax code as part of the so-called fiscal cliff tax bill of 2012.
In 2015, Hillary and Bill Clinton were among the group that got no personal exemptions.
But the rest of us who don’t make nearly as much money as the Clintons can claim personal exemptions. Make sure to claim all the dependents — to which you’re entitled — to take full advantage of the allowable exemption amounts.
A key part of the Affordable Care Act, also referred to as Obamacare, requires individuals to have a certain level of health care coverage or face a tax penalty.
Individuals receive a variety of forms to help them prove they meet the health insurance mandate. Workers and their family members who get coverage through their workplace or who buy acceptable policies on their own, simply need to check a box on their tax return attesting they had the required coverage for the full tax year.
That’s what the Clintons did on line 61 of their 2015 tax return.
If you file a 1040A, you’ll find the checkbox on line 38; it’s on line 11 of the 1040EZ return.
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Sign your return
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The Clintons had a professional prepare their 2015 tax return. That tax pro had to include his address, IRS identification number and signature.
But the Clintons are responsible for everything on that 1040 and all the attached forms, so they signed their 1040, too. Since they file jointly, both their John Hancocks are required.
It doesn’t matter if you’re a presidential candidate or a regular taxpayer who’ll be deciding who sits in the Oval Office. Your signature, regardless of whether you file by paper or electronically, is required on your tax return. Without it, the IRS won’t accept your filing.