Tag Archives: Taxes

Tax tip – file something!

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Tax Day in 2016 is April 18th which means you’ll need to e-file or postmark your taxes or an extension by that date.   Since that’s just 2 days away, I wanted to share with you a quick tip I read in last week’s Parade magazine:

Even if you owe taxes and don’t send money, you’ll save big if you file your return or an extension by April 18.  Why?  The failure-to-file penalty can be 10 times more than the failure-to-pay penalty, which is .5% + interest.  (http://parade.com/468729/alison-abbey/still-havent-filed-these-tax-tips-can-help/)

One important note: filing an extension isn’t an extension on tax payments – the IRS still wants you to pay an estimate of your taxes owed by April 18, 2016.  For more information on how to file an extension, check out this page on the IRS website: https://www.irs.gov/uac/Newsroom/Five-Things-to-Know-if-You-Need-More-Time-to-File-Your-Taxes.

So if you haven’t finished your 2015 taxes yet, make sure you file something (your return or an extension) by Monday – you’ll save yourself a headache by doing so!

Happy Decoding!

Fun fact for today: Washington DC is celebrating Emancipation Day (the day President Lincoln signed the bill ending slavery in DC), which is April 16th, on April 15th in 2016, since the 16th is a Saturday.  As a result, Tax Day has been moved to April 18th.  So you get 3 extra days to file your taxes this year – yippee! 😉 (Source: https://www.libertytax.com/tax-lounge/tax-day-will-come-3-days-later-in-2016/)

Disclaimer: This blog post is not intended to be tax advice.  For answers to your specific tax questions, please consult a tax professional.

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Tax tip – read the instructions!

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Copyright 2016 Sweet Doll Designs

I know by writing this post, I will be revealing myself as a major dorko, but here goes, anyway 😉

While Accounting is my profession, I am not, nor do I ever have the desire to be, a tax accountant.  Having said that, I always prepare my taxes by hand, check my work on Turbo Tax, then I file my tax return through the mail.  I do this partly so that I fully understand how my taxes are being calculated and partly because I don’t want to pay Turbo Tax to file my returns for me.

Over the years of filling out my 1040 form myself, I’ve discovered that the IRS includes really helpful line-by-line information in the form’s accompanying instructions.  With that in mind, here’s my big tax tip that will only take a few minutes, but has the potential to save you money:

Read the 1040 form instructions!

Specifically the section on Adjusted Gross Income, which can be found if you scroll down to page 31 of this pdf document: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf.  Dorko alert: I read through each of these potential deductions carefully to see if I qualify for any of them.  By doing so, I found that I qualified for one – you may be pleasantly surprised that you do, too!

There are only 13 possible deductions in this section, so it won’t take you long to read the instructions.  Examples of popular deductions are: student loan interest, tuition and fees, IRA, HSA, moving expenses, and alimony paid, to name a few.

It is also worth your time to read the Tax and Credits section found on page 38 of the same pdf document: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf.  There are only 7 credits to read about, so again, it won’t take much time.  In this section are credits such as: retirement savings contributions credit, residential energy credit, child tax credit, and education credits, to name a few.

I have always found that reading the IRS-provided instructions while filling out my taxes has been very helpful and well worth my time.  Also, if I have any questions when reading the instructions or am not familiar with a referenced form, I just quickly look it up on the IRS website.  I know it may seem scary, but the IRS website is really very easy to use and understand, helpful, and informative!

Good luck with your tax returns this year!  Remember to file by April 18, 2016.

Happy Decoding!

Fun fact for today: Have you ever wondered what the difference is between a tax deduction and a tax credit?  A deduction is taken before calculating your Adjusted Gross Income (otherwise known as your AGI).  Your taxes are calculated on your AGI less the itemized or standard deduction and less your exemptions.  On the other hand, credit provides a dollar-for-dollar reduction of your tax due, since any credits are subtracted from the tax amount due.  A deduction isn’t better than a credit and vice versa, but it’s important to be sure you claim all available deductions and credits if you qualify for them! (Source: https://www.irs.com/articles/tax-credits-vs-tax-deductions)

Disclaimer: This blog post is not intended to be tax advice.  For answers to your specific tax questions, please consult a tax professional.

To owe or not to owe: that is the question

Copyright 2014 - Sweet Doll Designs
Copyright 2014 – Sweet Doll Designs

Now that my husband and I have filed our 2013 taxes jointly for the first time, the discussion in our household is how to organize ourselves for tax season next year.  Should we receive a refund or should we owe taxes for 2014?

While I think it’s nice to get a refund on my taxes, when I think about it, getting a refund means I’ve given the government an interest-free loan.

A few years ago, I re-configured my tax deductions so that less taxes are taken out of each paycheck, and at the end of the year, I owe a bit in taxes.  Since less taxes are taken out of my paycheck, I put the extra money I receive straight into a savings account where I earn interest throughout the year.  Then at the end of the year when I calculate how much I owe in taxes, I simply take the money out of my savings account and write out a check.

This way, the government has given me an interest-free loan, and I’ve earned a bit of interest in my savings account in the process.

I know that some people use their refund for vacations or other big purchases.  This is also fine, but again, consider that you’re loaning that money and not earning any interest on it.  Wouldn’t it be better to save your money each month so that you can afford that same vacation or other big purchase, all while earning interest in the bank?

Stick with me and I’ll give you some tips on painless ways to save in future posts!

I am not a tax professional and cannot give you tax advice*.  All I’m encouraging you to do is consider your options.  It is worth asking the Payroll department of your company what your paycheck would look like if you changed around your tax deductions.  You might even use that information to re-calculate last year’s taxes and compare the result to be sure you wouldn’t owe too much in taxes.  Then make your final decision (which can always be changed again if needed).

If you’re looking for a great savings account, I have been very pleased with Capital One 360 (formerly ING Direct).  They offer some of the best interest rates I’ve found.  As I write this today, the interest rate on my savings account is 0.75%.  Compare that to what a traditional bank is offering and you will see a huge difference (my traditional bank is offering a 0.01% interest on my savings account – I only keep it as overdraft protection).

What I really like about the Capital One 360 account is that you earn more interest than at traditional banks, you can have as many accounts as you want (each for a different purpose, if you wish), there are no account minimums, and it is super easy to transfer money whenever needed.

Capital One 360 did not pay me to promote their products and I am in no way affiliated with them.  I am simply a happy customer.  If you’d like to look into opening an account with them, please consider using this link: https://r.capitalone360.com/PWBs7SgWpH  If you open an account with $250 or more, both you and I will get a bonus!  It’s a win-win for everyone! 🙂

So what have you and your household decided is the best way to handle your taxes?

Happy Decoding!

Fun fact for today – The first US income tax started in 1862 to help raise money for the Civil War, which began April 12, 1861 at Fort Sumter, SC. (Sources: http://www.bargaineering.com/articles/50-fun-facts-about-taxes.html and www.reference.com)

*Please consult a tax professional when making changes to your deductions that will have an impact on your taxes.

Filing status on your taxes

Copyright 2014 - Sweet Doll Designs
Copyright 2014 – Sweet Doll Designs

My friend got married in 2013.  Early in 2014, she was contemplating how to file her 2013 taxes – Married filing jointly or Married filing separately?  When she asked me about it, I was curious and did a little research, since I just got married last year, too.  The results I found were interesting and I thought you might find them so as well.

There are four filing statuses to choose from:

  • Single
  • Married filing jointly
  • Married filing separately
  • Head of Household

These options may seem self-explanatory, but if you’re married, you have a decision to make, especially if you’re a newlywed and this is the first time you’ll be filing a tax return as a married person.

So, which status should you choose?  I’m not licensed to advise you in your situation, however I can share some information with you.

According to the 2013 tax tables, a household Taxable Income of $75,000 would owe the following amounts:

  • Single – $14,685
  • Married filing jointly – $10,614
  • Married filing separately – $14,740
  • Head of Household – $13,259

As you can see, if you’re married, it may be to your advantage to select Married filing jointly because you may owe less in taxes.

I was most surprised to find that the Married filing separately status owes more taxes than the Single status.  I always thought that a married filing status, regardless of which one you choose, would be more advantageous than a Single filing status.  It turns out that may not be the case!  Also, I found out that filing separately means you can’t claim several tax benefits (such as student loan interest deduction, for example) that are available with other filing statuses.  To learn more about that, check out this website: http://taxes.about.com/od/filingstatus/qt/marriedseparate.htm .

So why would married couples consider filing separately?  Two examples I came across in my research are: 1) if the couple lived apart for six months or longer, and, especially if they lived in different states, they may not be allowed to file jointly; and 2) it seems common for wealthy couples to file separately in order to keep their finances separate, or maybe because one would owe taxes while the other would receive a return.

If you’d like to learn more about each filing status, this website explains each in more depth: http://taxes.about.com/od/filingstatus/qt/FilingStatus.htm .

There are many factors that go into determining your filing status and, in the end, you may decide to consult a tax professional before filing your taxes this year.

Happy Decoding!

Fun fact for today – In the United States, the first permanent income tax was established in 1913 with the ratification of the 16th amendment. (Source: http://www.bargaineering.com/articles/50-fun-facts-about-taxes.html)