IRS http://www.wisebread.com/taxonomy/term/262/all en-US 7 Lessons From Tax Day to Remember for Next Year http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-lessons-from-tax-day-to-remember-for-next-year" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-546177866.jpg" alt="Woman learning tax lessons she should&#039;ve learned this week" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Cue the sigh of relief: Another tax season has come and gone. Before you kick back and relax, though, take a little moment of self-reflection. Did Tax Day make your stress levels soar?</p> <p>If the answer is yes, it's time to brush up on a few key lessons to take with you into the 2017 tax year. We guarantee you'll be breathing a little easier come next April.</p> <h2>1. Keep track of all your income</h2> <p>Specifically, don't forget about taxes you'll need to pay on any income you earn during the year outside of a full-time job. This includes money from freelance work or self-employment, dividends on investments, interest payments, and even gambling winnings. Be sure to track all of this income so that you're not surprised by a tax bill later.</p> <h2>2. Save all of your paperwork</h2> <p>Make sure you keep careful track of any forms and paperwork necessary to file your taxes. This includes your W-2 or any 1099s, as well as documents from banks, investment firms, and your mortgage company. These forms are usually sent out in February.</p> <p>More immediately, if you make any contributions to charity, you'll need the documentation. If you own a small business, you'll need receipts for all expenses you plan to deduct. If you plan to seek deductions for any unreimbursed medical expenses, you'll need a bill from your health care provider. All of these are important in order to enter accurate information on your tax return. As you gather them throughout the year, set them aside in a file or box that you keep in a safe place.</p> <h2>3. Deductions and credits are your friends</h2> <p>A credit is a straight reduction in your tax bill. A deduction means you reduce the amount of your income that is taxable. Either way, these tax breaks should not be overlooked.</p> <p>You can get a tax credit for having a kid. You can get a tax deduction if you pay interest on your mortgage. You can get a tax deduction for charitable donations. There are even deductions and credits for using energy-efficient appliances or driving a hybrid car. The list of possible deductions and tax credits is massive, and chances are, you qualify for at least a few. Most tax preparers and tax preparation programs will walk you through these deductions and credits to make sure you're getting the maximum benefit. If you haven't paid much attention to potential tax deductions or credits in the past, however, make sure you start this year. It could save you significant money.</p> <h2>4. Understand how tax-advantaged investment accounts differ</h2> <p>In addition to claiming tax credits and deductions, you can reduce your tax bill in advance simply by saving for retirement. If you use a 401(k), traditional IRA, or Roth IRA to build your nest egg, there are considerable tax advantages, and you need to understand the main differences.</p> <p>With a 401(k) and traditional IRA, any money you contribute to your account throughout the year will be deducted from your taxable income now. In some cases, this could move you into a lower tax bracket and save you considerable money on this year's tax bill. With a Roth IRA, money you contribute is taxed now, but you will not have to pay taxes on any investment gains when you withdraw the money at retirement.</p> <h2>5. If you are getting a big return, that's not a good thing</h2> <p>Getting money back on your taxes is certainly better than owing so much to the IRS that you pay a penalty. But if you are getting a considerable amount back after filing your return, you may have had too much taken out of your paycheck and overpaid taxes throughout the year. So in a sense, the government has been holding onto your money interest-free for no reason when you could have been using it for yourself. To make sure this doesn't happen again, ask your employer for a new W-4 and increase the number of exemptions you claim.</p> <h2>6. If you make a mistake, you can amend your return</h2> <p>Tax time can be nerve wracking because people are petrified of making a mistake and having the IRS come after them. But the actual chances of the government knocking on your door are quite low. The IRS simply does not have the staff to audit many individuals, and when they do, they usually target either very wealthy people or people with very complicated tax returns.</p> <p>If you do discover that you made a mistake, you can file an amended return without much hassle. Simply file Form 1040X, Amended Tax Return, along with the corrected (or missing) documents you did not originally file with your return. This happened to me once when I forgot to report some dividend income, and I never had the taxman knock on my door. (See also: <a href="http://www.wisebread.com/the-easiest-way-to-avoid-a-tax-audit?ref=seealso" target="_blank">The Easiest Way to Avoid a Tax Audit</a>)</p> <h2>7. Use your taxes as a learning opportunity</h2> <p>Even with all these lessons under your belt, tax time can still be a tedious and stressful time of year. When all else fails, change your perspective. I personally find the process of doing taxes to be fairly educational. You can see a clear picture of how much money you actually took in during the year, and how much the government takes. The process of finding deductions can be a learning experience as well. If you approach doing your taxes with an attitude of curiosity, you may find the whole process to be less painful.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-most-common-tax-questions-for-beginners-answered">The 7 Most Common Tax Questions for Beginners, Answered</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-common-tax-mistakes-we-need-to-stop-making">5 Common Tax Mistakes We Need to Stop Making</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-easiest-way-to-avoid-a-tax-audit">The Easiest Way to Avoid a Tax Audit</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake">What to Do When Your Tax Preparer Makes a Mistake</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/101-tax-deductions-for-bloggers-and-freelancers">101 Tax deductions for bloggers and freelancers</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes advice audits credits deductions forms income investing IRS tax lessons tax returns w-2 Fri, 21 Apr 2017 08:00:10 +0000 Tim Lemke 1931721 at http://www.wisebread.com What to Do If You Have a Tax Lien On Your House http://www.wisebread.com/what-to-do-if-you-have-a-tax-lien-on-your-house <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-to-do-if-you-have-a-tax-lien-on-your-house" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-523154492_0.jpg" alt="Woman learning what to do with a tax lien on her house" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The government doesn't play around with taxpayers who skip out on what they owe. When you ignore your federal, state, or property tax bills &mdash; and you don't make any attempts to pay the balance &mdash; the government can place a tax lien on your house.</p> <p>A tax lien is a legal claim on property for failure to pay taxes owed. It gives the tax authority (also known as the lienholder) first rights to your property over other creditors.</p> <p>A lien differs from a levy in that the government doesn't seize your house or other property. Keep in mind that a lien can become a levy at some point if you never pay your taxes or never make arrangements to satisfy the debt. The tax authority decides when to impose a levy. You'll receive written notice of the levy at least 30 days before it takes place.</p> <p>A lien is a serious matter because it can negatively affect your credit. Unpaid tax liens can remain on credit reports indefinitely, whereas paid tax liens can remain for up to seven years from the date filed.</p> <p>Of course, the best way to handle a tax lien is to avoid one in the first place. But if the damage is done, here's how to put this ugly mark behind you.</p> <h2>1. Dispute a filing error</h2> <p>It's not uncommon for mistakes to appear on credit reports. In fact, according to recent data from the Consumer Finance Protection Bureau, 76 percent of the 185,700 credit-reporting complaints they've received since 2011 are related to errors &mdash; including state or federal tax liens that mistakenly appeared on credit reports.</p> <p>If you check your credit report and find a lien reported in error, don't ignore this mistake. This can lower your credit score. Contact the IRS or your state tax office to file a dispute. If a review of your account proves that you don't owe the debt, the government withdraws the tax lien (as if it never happened). A withdrawal also removes the lien from your credit report.</p> <p>Thankfully, the number of tax liens reported in error should be dropping. In response to criticisms by the CFPB, the top consumer reporting agencies &mdash; Experian, Equifax, and TransUnion &mdash; issued a new provision. As of July 1, 2017, tax lien and civil judgment data will <a href="http://www.nasdaq.com/article/clearing-misconceptions-about-new-consumer-data-laws-cm772651" target="_blank">only be included on credit reports</a> if they contain three pieces of information: the person's name, address, and Social Security number or date of birth. This information must be current according to court records as of the last 90 days.</p> <p>The association representing the credit bureaus expects half of the consumers with tax liens on their credit reports will see them removed.</p> <h2>2. Pay your tax bill in full</h2> <p>Parting with your hard-earned money isn't easy, but paying your tax bill in full is one of the fastest ways to get the government off your back and move on with your life.</p> <p>Typically, the government releases tax liens within 30 days of full payment of an outstanding debt (including penalties and interest). A release removes the lien from the property.</p> <p>Unfortunately, paid tax liens can still remain on your credit report for up to seven years. However, under the IRS's Fresh Start Program, after paying your balance in full, you can submit a request to have a federal tax lien withdrawn from your credit report before the seven-year mark. Some states also give taxpayers the option of requesting an early withdrawal of a state tax lien from their credit report once they've paid their debt in full.</p> <h2>3. Set up an installment plan</h2> <p>If you can't pay what you owe in full, set up an installment plan with the government. This lets you pay off your tax debt over time. The tax authority releases the lien once you've set up a payment plan.</p> <p>In the case of federal debt, the IRS allows individual taxpayers to set up monthly direct debit payments on debt amounts up to $50,000 for up to six years. Go to IRS.gov and apply for installment payments through the online payment system. If you owe more than $50,000, or require longer repayment terms, request installment payments by completing and mailing Collection Information Statement Form 433-A or Form 433-F.</p> <p>Taxpayers who owe less than $25,000 and who've made at least three consecutive direct debit installment payments also can request to have the lien withdrawn from their credit report. However, defaulting on an installment agreement can trigger a new tax lien.</p> <p>Some states also allow installment plans to repay a tax debt, though the criteria for these plans varies by state.</p> <h2>4. Sell the property</h2> <p>If you don't have money to pay an outstanding tax debt in full, and you can't afford an installment plan, another option is selling the property and satisfying the debt with proceeds from the sale. However, this method only works if the sale price is high enough to pay off the lien and any existing mortgages on the property. If the sale won't generate enough proceeds to pay off attached liens, you can't sell the property. If you're able to sell the home, the company handling your escrow account forwards payment to the lienholder after closing.</p> <p>Keep in mind that you'll need to contact the lienholder before closing to request a lien release. In the case of federal taxes, this involves requesting a Certificate of Discharge from the IRS. If the request is approved, this document releases (or removes) the lien from the asset being sold (though it stays in place in every other way), and allows the property to transfer to the new owner lien-free.</p> <h2>5. Refinance the property</h2> <p>Then again, maybe you don't want to sell your home. There's also the option of refinancing and borrowing cash from your home equity to satisfy a state or federal tax lien on the property. Since refinancing replaces an existing mortgage with a new loan, mortgage lenders will not approve your loan application unless they have first lien position on the title. This puts the lender in priority position to benefit from liquidation if the property goes into default. For this to happen, you'll have to request a lien subordination from the IRS or your state tax office before applying for the loan.</p> <p>Subordination doesn't eliminate a tax lien &mdash; rather, the lien becomes secondary to a lender's lien on the property. And with the lender's security interest first, you're more likely to acquire a new mortgage.</p> <p>Be aware that your ability to refinance depends on how the tax lien impacted your credit. A tax lien will reduce your credit score, and to refinance, you'll have to meet a lender's income and credit score requirements. You need a minimum credit score of 620 for a conventional loan and a minimum credit score between 500 and 580 for an FHA loan.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/what-to-do-if-you-have-a-tax-lien-on-your-house">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-what-happens-if-you-dont-pay-your-taxes">Here&#039;s What Happens If You Don&#039;t Pay Your Taxes</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-can-you-do-if-you-cannot-afford-to-pay-your-taxes">What can you do if you cannot afford to pay your taxes</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-easy-way-to-do-your-taxes-without-paying-someone-else">The Easy Way to Do Your Taxes (Without Paying Someone Else)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-money-moves-to-make-the-moment-your-credit-cards-are-paid-off">9 Money Moves to Make the Moment Your Credit Cards Are Paid Off</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/get-your-money-sooner-by-starting-2016-tax-prep-now">Get Your Money Sooner by Starting 2016 Tax Prep Now</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing Taxes credit report credit score federal filing errors government IRS payment plans property refinancing state tax bills tax liens taxpayers Mon, 17 Apr 2017 08:30:08 +0000 Mikey Rox 1928274 at http://www.wisebread.com What to Do When Your Tax Preparer Makes a Mistake http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-to-do-when-your-tax-preparer-makes-a-mistake" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-501391448.jpg" alt="Man learning what to do when a tax preparer makes a mistake" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You might think that hiring a tax preparer to file your income taxes will guarantee a mistake-free return. Unfortunately, you'd be wrong.</p> <p>In 2015, the National Consumer Law Center used mystery shoppers to test the work of 29 tax preparers. The results were surprising: Only two of the returns compiled by these preparers came in error-free. That's bad news for a lot of people. USA Today reported in February that almost <a href="https://www.usatoday.com/story/money/personalfinance/2017/02/06/should-you-do-your-taxes-yourself-hire-tax-preparer/97198816/" target="_blank">79 million e-filed tax returns</a> were completed last year by professional tax preparers.</p> <p>And here's even more bad news: The IRS says that if your tax preparer makes a mistake resulting in you having to pay additional taxes, interest, or penalties, <em>you</em> are responsible for paying these fees &mdash; not your tax preparer.</p> <p>If your tax preparer does make a mistake on your return, what can you do? Here are five suggestions.</p> <h2>1. Contact your preparer</h2> <p>If the IRS sends you a letter claiming that there are mistakes on your taxes, call your tax preparer for an explanation. Tax preparers who do make mistakes might offer to pay any fees, penalties, or interest charges for you. This might not restore your confidence in their abilities, but it will help save your budget.</p> <h2>2. Pay the penalties</h2> <p>If the IRS is charging you a penalty for a tax mistake, even if that mistake was made by your preparer, pay it. You might be battling it out with your tax preparer in the hope of getting this professional to pay the penalty on your behalf, but the IRS doesn't care. If it doesn't receive its payment, you are the one who will face additional financial penalties.</p> <p>If your tax preparer refuses to pay for its mistake, send a check to the IRS. Then continue your fight against the preparer.</p> <h2>3. Know your rights</h2> <p>Check any contract you signed with your tax preparer. There might be language in the contract stating what your tax preparer will do in the event of a mistake. Some tax preparers will pay the interest and penalties that result from a mistake, but not any extra taxes you might owe.</p> <p>Some tax preparation firms, especially the big ones, might offer insurance that you can purchase for an extra fee. If you've bought this insurance, your tax preparer might be obligated to pay any interest, fees, or extra taxes you owe because of their mistakes.</p> <p>Be aware that tax preparers won't pay any penalties on your behalf, even if you've purchased extra insurance, if the mistakes they've made are because you provided them with inaccurate information.</p> <h2>4. Check the statute of limitations</h2> <p>If your tax preparer made a mistake that caused you to overpay on your taxes, you have three years to request a refund from the IRS. You must provide documentation to back up your claim that you overpaid.</p> <p>This statute of limitations works in reverse, too. If you underpaid your taxes because of a preparer mistake, the IRS has three years in which they can come after you for the money you owe. If your tax preparer made a substantial error, however (such as omitting 25 percent or more of your gross income), the IRS can go back up to six years. It's recommended to keep your records for at least this long. Be aware there is no statute of limitations for those who knowingly file fraudulent returns, evade taxes, or fail to file altogether.</p> <h2>5. File a complaint</h2> <p>If you discover that your preparer made an intentional mistake, perhaps to boost your return, make an official complaint with the Office of Responsibility at the IRS. If your preparer is a member of the American Institute of Certified Public Accountants, National Association of Enrolled Agents, or a state law association, you can also file a complaint with these organizations. Such complaints could cause tax preparers to face fines or lose their licenses.</p> <h2>Reduce the odds of a mistake by hiring the right professional</h2> <p>Sometimes you can prevent a future mistake by hiring the right tax professional upfront. The truth is, anyone can work as a tax preparer. Preparers must apply for a Preparer Tax Identification Number from the IRS. But getting this number is easy: It costs $50, and the IRS says that applying takes just 15 minutes.</p> <p>If you're searching for a tax professional, it's best to work with either a certified public accountant with experience completing tax returns, or what is known as an Enrolled Agent. To become an Enrolled Agent, tax preparers must first pass a three-part test given by the IRS that covers the ins and outs of individual and business tax returns. Some certified public accountants will also be Enrolled Agents.</p> <p>Ask any tax preparer for the phone numbers of past clients. Then call these clients to ask about the work the tax preparer turned in. The IRS also recommends that consumers only work with tax preparers who charge a flat fee. Preparers who charge a percentage of your tax refund might be tempted to fudge the numbers to boost your return.</p> <p>Finally, make sure that you provide all the proper documents and numbers. The tax preparer may or may not double check your numbers. Maybe you forgot about the antique you sold on eBay. Maybe you transposed a number when adding up your home office deductions. You can't depend on the tax preparer to notice that something is off or verify your numbers. The best professionals will ask you a lot of questions to ensure you've provided all the information. But others may just take your documents and enter the numbers.</p> <p>The bottom line is if the IRS audits you and discovers that the preparer made mistakes &mdash; intentional or accidental &mdash; you'll have to pay any penalties and fees.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-what-happens-if-you-dont-pay-your-taxes">Here&#039;s What Happens If You Don&#039;t Pay Your Taxes</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-freelancers-and-side-giggers-need-to-know-about-income-taxes">What Freelancers and Side Giggers Need to Know About Income Taxes</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-tax-changes-for-2016">5 Important Tax Changes for 2016</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-reasons-you-should-file-your-taxes-as-soon-as-possible">8 Reasons You Should File Your Taxes as Soon as Possible</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes accountants complaints cpa enrollment agents errors fees IRS Mistakes penalties statute of limitations tax filing tax returns Thu, 13 Apr 2017 08:00:10 +0000 Dan Rafter 1925856 at http://www.wisebread.com Most Popular Ways Americans Spend Their Tax Refunds http://www.wisebread.com/most-popular-ways-americans-spend-their-tax-refunds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/most-popular-ways-americans-spend-their-tax-refunds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-492675012.jpg" alt="Here are the most popular ways Americans spend their refunds" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>According to the IRS, the <a href="https://www.irs.gov/uac/newsroom/filing-season-statistics-for-week-ending-feb-26-2016" target="_blank">average tax refund in 2016</a> was $3,053. While we here at Wise Bread generally advise against giving the government a free loan all year, there's no arguing that a tax refund can go to good financial use. But how, exactly do most Americans spend their newfound chunk of change?</p> <h2>What do most people spend on?</h2> <p>Fortunately, the majority of people use their tax refund to pay down debt, save, or invest. In a poll conducted by GoBankingRates, 41 percent of people deposited the money into their savings account and 38 percent used it to pay off debt.</p> <p>More than half of millennials plan to use their refunds for savings and debt repayment. This is a major change from previous years, when the tendency for this age group was to spend on splurge purchases (clothes, video games, new shoes, etc.). Gen Xers are the second group behind millennials most likely to use their refund for debt repayment, and younger Gen Xers (35&ndash;44) are the second most likely behind boomers to fund a vacation. While baby boomers age 65+ are less likely to receive a refund, they are currently more likely to spend it on a vacation or splurge purchase than other generations. Despite more boomers spending on themselves, 42 percent still allocate their refund to savings.</p> <h2>Smart ways to use your refund</h2> <p>If you're getting a tax refund this year, you might be tempted to splurge. While there's nothing wrong with treating yourself once in awhile, your money would be better spent in these smart ways.</p> <h3>Boost your emergency fund</h3> <p>You should have three to six months' worth of expenses saved for a <a href="http://www.wisebread.com/a-step-by-step-guide-to-creating-your-emergency-fund?ref=internal" target="_blank">financial emergency</a>. If your savings account could use some padding, this is the perfect time to save without feeling the burn. Your future self will be grateful for your savviness. (See also: <a href="http://www.wisebread.com/50-smart-things-to-do-with-your-tax-refund?ref=seealso" target="_blank">50 Smart Things to Do With Your Tax Refund</a>)</p> <h3>Pay down debt</h3> <p>According to a GoBankingRates survey, the top source of financial stress for Americans is paying off debt. Fortunately, your tax refund can help ease that stress. Consider using the money to make an extra mortgage or student loan payment, or help tackle your <a href="http://www.wisebread.com/5-ways-to-pay-off-high-interest-credit-card-debt?ref=seealso" target="_blank">high-interest credit card debt</a>. (See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=seealso" target="_blank">Fastest Way to Pay off $10K in Credit Card Debt</a>)</p> <h3>Invest it</h3> <p>If you already have an emergency fund to fall back on, then consider using your refund to pad your retirement accounts or other investments. You can also begin diversifying your portfolio to mitigate risk and potentially increase your returns.</p> <h3>Invest in yourself</h3> <p>If you've considered taking classes, focusing on your hobbies, getting in shape, or starting a small business, then it might be worth using your refund to fund these ventures. By investing in yourself, you'll continue benefiting from the refund over time.</p> <h3>Make small home improvements</h3> <p>Have you been putting of small fixes around the house? It's time to tackle them now before they turn into a bigger problem. Simple upgrades are not expensive, and can result in a higher resale value and future tax benefits. (See also: <a href="http://www.wisebread.com/10-cool-diy-home-improvements-for-20-or-less?ref=seealso" target="_blank">10 Cool DIY Home Improvements for $20 or Less</a>)</p> <h3>Donate it</h3> <p>If you're feeling financially secure in your own life, consider paying the funds forward. Donating your refund to a worthwhile charity ensures that the money is going to great use. It can also reduce your taxable income for the next tax season. (See also: <a href="http://www.wisebread.com/can-i-write-it-off-as-charity?ref=seealso" target="_blank">Can I Write It Off as Charity?</a>)</p> <h3>Treat it like a paycheck</h3> <p>Figure out how much of your paycheck you allocate to certain expenses each month (food, mortgage, gas, etc.) and treat your tax refund the same. Don't forget to include any debt payments. Just like a typical paycheck, you might even have a small amount leftover to use for something fun.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/andrea-cannon">Andrea Cannon</a> of <a href="http://www.wisebread.com/most-popular-ways-americans-spend-their-tax-refunds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/beware-these-6-phony-irs-calls-and-emails">Beware These 6 Phony IRS Calls and Emails</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake">What to Do When Your Tax Preparer Makes a Mistake</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-if-you-have-a-tax-lien-on-your-house">What to Do If You Have a Tax Lien On Your House</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/make-these-5-money-moves-before-applying-for-a-mortgage">Make These 5 Money Moves Before Applying for a Mortgage</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes debt repayment investments IRS saving money spending habits splurges tax refunds Mon, 03 Apr 2017 08:30:18 +0000 Andrea Cannon 1917304 at http://www.wisebread.com Why Tax Day Is April 15 and Other Weird Financial Deadlines http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-tax-day-is-april-15-and-other-weird-financial-deadlines" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-175261184.jpg" alt="Learning why Tax Day is on April 15" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>April is one of the finest months of the year. The sun breaks through the clouds, the cherry blossoms bloom, and the promise of warm weather beckons.</p> <p>So of course, the IRS, in its infinite wisdom, decided to place Tax Day right smack dab in the middle of all of this riotous spring beauty.</p> <p>Though I have always believed that the placement of Tax Day in mid-April is proof of the federal government's grim sense of humor, there is actually some method to their madness &mdash; both for this, and all other seemingly arbitrary financial dates and deadlines.</p> <p>Here are the reasons behind some of the most head-scratching financial dates in the United States.</p> <h2>Why is Tax Day on April 15?</h2> <p>Paying federal income taxes is actually a relatively new phenomenon in American history. The first time an income tax was levied on Americans was in 1861 in order to help pay for the Civil War. In 1872, the law surrounding the tax was repealed after opponents successfully argued that federal income tax was unconstitutional.</p> <p>Fast forward to February 3, 1913, when Congress adopted the 16th amendment to the constitution, which allows for federal income tax. Congress also determined the first due date for filing 1913 taxes would be March 1, 1914 &mdash; one year and a couple of weeks later. March 1 offered an easy-to-remember due date that gave citizens just over a full year to get used to being taxpayers, gather up their receipts into the early 20th century version of a shoe box, and file their first returns.</p> <p>Then in 1918, the due date was moved to March 15, for reasons that no one in Congress saw fit to explain or write down.</p> <p>Congress again moved the filing due date in 1955, this time to the now-familiar date of April 15. According to the IRS, the date change helped to spread out the tax season workload for IRS employees.</p> <p>However, there may be a slightly more mercenary reason for the date change: According to Ed McCaffery, a University of Southern California law professor and tax guru, by the mid 1950s, the income tax was applying to increasing numbers of middle class workers, which meant the government had to issue more refunds. &quot;Pushing the deadline back gives the government more time to hold on to the money,&quot; McCaffery claimed in Fortune magazine. And the longer the government holds onto taxes that have been withheld but are destined to be refunded, the more interest it earns on the money.</p> <h3>Okay, so why is Tax Day on April 18 this year?</h3> <p>If you look at an April calendar for 2017, you'll see that April 15 falls on a Saturday this year, which means we get a little extension, since Tax Day can't fall on a weekend. However, you might be confused as to why we get an extension to Tuesday, April 18, instead of Monday, April 17.</p> <p>The reason for our extra day is a Washington, D.C. holiday known as Emancipation Day. Though only Washington, D.C. observes this holiday, a federal statute enacted decades ago states that holidays observed in our nation's capital have a nationwide impact.</p> <h2>Why was 65 chosen as full retirement age for Social Security?</h2> <p>When the Social Security Act was officially adopted in 1935, the age of 65 was chosen as the standard retirement age for beneficiaries. Why was that age chosen as the proper time for full retirement? Why not 63 or 67 or 70?</p> <p>There are a couple of persistent myths out there about this choice, but they are nothing more than misconceptions:</p> <h3>Myth #1: People would die before collecting</h3> <p>The age of 65 was chosen so that people would not live long enough to collect benefits. According to life expectancy actuarial tables from 1930, the average life span was 58 for men and 62 for women, which would make it seem as if Social Security was designed to never make a payout to beneficiaries. However, this myth stems from an unfamiliarity with actuarial tables, which offer an average of <em>all </em>life spans, starting from birth. High infant mortality in the 1930s lowered the overall rate of life expectancy, but anyone who made it to adulthood had a much better chance of reaching age 65 and collecting benefits.</p> <h3>Myth #2: Bismarck was 65</h3> <p>The age of 65 was chosen because Otto von Bismarck &mdash; the author of the world's first old-age social insurance program upon which our Social Security program was partially based &mdash; was 65 when Germany adopted his program. This myth is false on several counts. Bismarck was actually 74 when the German system was adopted, and Germany initially set the retirement age at 70. Germany's retirement age was not lowered to 65 until 1916, at which point Bismarck had been dead for nearly two decades.</p> <h3>The truth behind 65</h3> <p>The actual reason why 65 was chosen as the initial full retirement age for Social Security is pretty boring. The Committee on Economic Security, which Franklin D. Roosevelt created to propose Social Security legislation, conducted a comprehensive analysis of actuarial studies, domestic private pension systems in America, and the social insurance experience in other countries. Based upon that research, the committee recommended 65 as the standard retirement age for Social Security.</p> <h2>Why is 59&frac12; the minimum age to take distributions from tax-deferred retirement accounts?</h2> <p>When it comes to tax-deferred accounts like 401(k)s and traditional IRAs, you are not allowed to take distributions until you have reached the magical age of 59&frac12;. Otherwise, you will owe a 10 percent early withdrawal penalty on the amount you withdraw, in addition to the ordinary income tax you'll owe whenever you take a distribution.</p> <p>So why is the IRS asking you to celebrate half-birthdays when you're nearly 60 years old? Congress used the age of 59&frac12; as the earliest withdrawal age because life insurance actuarial tables consider you to be 60 years old once you have reached the age of 59 and six months &mdash; and at the time that the rules were put in place, 60 was a relatively common age for retirement.</p> <h2>Why must you begin taking required minimum distributions from tax-deferred retirement accounts at age 70&frac12;?</h2> <p>Of course, the IRS is not just about picking random minimum ages for when you <em>can </em>take distributions from tax-deferred retirement accounts &mdash; they also have a random age for when you <em>must </em>take distributions from those accounts.</p> <p>Since the money in your tax-deferred account was placed there before you paid taxes on it, Uncle Sam does want you to eventually pull the money out again so he can get his cut of the money in the form of taxes. That means the IRS requires each account holder to begin withdrawing money during the year that they reach age 70&frac12;. This is called the required minimum distribution (RMD).</p> <p>But unlike the 59&frac12; rule, 70&frac12; does not actually mean your half-birthday. The IRS makes a distinction between those individuals born in the first half of the year and those born in the second half. If your birthday falls between January 1 and June 30, you have to take your first RMD during the calendar year you turn 70. But if your birthday falls between July 1 and December 31, then you don't officially have to take your first RMD until the calendar year you turn 71.</p> <p>Describing this year as being when you are 70&frac12; is actually shorthand, since some folks will be taking their first RMD the year they turn 70, and some will be taking their first RMD the year they turn 71.</p> <h2>Why does Social Security think New Year's babies were born in the previous year?</h2> <p>Unless you happen to have a January 1 birthday, you might not know about this odd piece of Social Security dating. But according to the Social Security Administration, individuals born on the first of the year are considered to have birthdays in the previous year. So Social Security will group someone with a January 1, 1954 birthday with beneficiaries who were born in 1953.</p> <p>This can actually make a big difference when it comes to some Social Security benefits, particularly when those benefits are eliminated. For instance, in 2015 Congress ended the restricted application strategy for any beneficiary born after 1953. The restricted application let applicants specify which Social Security benefits they did <em>not</em> want to apply for, even if they were eligible for all of them. So, for example, beneficiaries who reached full retirement age could claim a spousal benefit while continuing to let their own grow. Beneficiaries who were born on January 1, 1954 were grouped with those with 1953 births &mdash; which means anyone born on January 2, 1954 had rotten luck in terms of using the restricted application.</p> <p>Why does Social Security extend a year 24 hours past the time the rest of us do? This odd birth year dating occurs because the Social Security Administration groups beneficiaries who have birthdays on the first of the month with beneficiaries born in the previous month. This grouping allows first-of-the-month babies to have a little more leeway when it comes to deadlines and other requirements. In order to be completely fair with the first-of-the-month grouping, January 1 babies are then considered to have been born in the previous year.</p> <h2>The government is not entirely lacking in sweet rhyme and pure reason</h2> <p>The financial dates that we all must adhere to may seem like ridiculous and arbitrary decisions, but there was some thought put into them. Those thoughts might only make sense to the people that made the decisions, but at least we know they weren't throwing darts at a calendar.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-your-taxes-will-change-when-you-retire">Here&#039;s How Your Taxes Will Change When You Retire</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-more-money-in-retirement-might-cost-you">3 Ways More Money in Retirement Might Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-face-4-ugly-truths-about-retirement-planning">How to Face 4 Ugly Truths About Retirement Planning</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-reasons-to-claim-social-security-before-your-retirement-age">3 Reasons to Claim Social Security Before Your Retirement Age</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement">6 Smart Ways to Boost Your Social Security Payout Before Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement Taxes 401(k) ages benefits dates distributions finance facts full retirement age IRA IRS social security tax day trivia Wed, 29 Mar 2017 08:00:22 +0000 Emily Guy Birken 1914689 at http://www.wisebread.com Here's What Happens If You Don't Pay Your Taxes http://www.wisebread.com/heres-what-happens-if-you-dont-pay-your-taxes <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-what-happens-if-you-dont-pay-your-taxes" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-153832691.jpg" alt="Woman learning what happens if she doesn&#039;t pay taxes" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>As Tax Day looms, you may wonder how high the tax man should rank on your list of creditors. Is it better to postpone paying taxes in order to <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=internal" target="_blank">pay off credit card debt</a>, or to keep the electricity running?</p> <p>Here's what happens if you're not able to pay everything you owe to the IRS, as soon as you owe it.</p> <h2>1. You'll Pay a Penalty</h2> <p>Assuming that you filed your tax return on time but didn't pay your full tax bill, the IRS will charge you <a href="https://www.irs.gov/taxtopics/tc653.html" target="_blank">0.5% of what you owe</a>, every month until you pay, up to 25% of the debt. So if you still owed $1,000 when you filed your return on April 18, you'll owe an additional $5 a month.</p> <p>It's a very good idea to file your return on time, or file an extension, even if you won't be able to pay right away &mdash; fees increase if you haven't filed a return by Tax Day. Also, filing on time might get you a break: The IRS says that if you file for an extension or file your return, you may <a href="https://www.irs.gov/uac/things-you-should-know-about-filing-late-and-paying-penalties" target="_blank">not have to pay the penalty</a> if you've paid 90% of what you owe by Tax Day.</p> <h2>2. You'll Pay Interest</h2> <p>The IRS isn't going to lend you that money interest-free. The rate on money you owe to the IRS is <a href="https://www.irs.gov/pub/irs-news/ir-16-159.pdf" target="_blank">currently 4%</a>.</p> <h2>3. You'll Get a Bill</h2> <p>If you haven't filed your tax return at all, the government will kindly figure out how much you owe for you and send a bill. Actually, not so kindly, because the way they'll calculate your taxes, you'll end up owing more than you would have if you'd done them yourself. The government doesn't have access to all your financial records, so they may not give you <a href="https://www.irs.gov/businesses/small-businesses-self-employed/filing-past-due-tax-returns" target="_blank">credit for your deductions</a>.</p> <p>Even if you file your return, if you owe money, eventually you'll start getting mail about it from the IRS.</p> <h2>4. You Could Get a Lien on Your Home</h2> <p>If you don't pay those bills (or show the IRS they're wrong and you don't owe), the next step is putting a lien on your property &mdash; usually your house, if you own one. This tends to happen if you owe $10,000 or more and haven't worked out a plan with the IRS to pay it off.</p> <p>A <a href="https://www.irs.gov/businesses/small-businesses-self-employed/understanding-a-federal-tax-lien" target="_blank">federal tax lien</a> is a legal document that says if you sell your property, the proceeds will go toward your debt before you see a dime. This could make it tough or impossible to take out a mortgage on your home, and <a href="http://info.courthousedirect.com/blog/bid/309664/How-Do-Liens-Affect-Real-Estate-Sales" target="_blank">complicate the deal</a> if you try to sell your home.</p> <p>The tax lien will be reported on your credit report and will <a href="http://www.experian.com/blogs/ask-experian/tax-liens-in-your-credit-report/" target="_blank">stay there for seven years</a>, even after you pay the debt. This can make it impossible to get approval for new credit cards or other loans.</p> <h2>5. You Could Lose Your Passport</h2> <p>Thanks to a new law, the State Department can now revoke your passport (or refuse to issue you one) if you owe the IRS <a href="http://transportation.house.gov/uploadedfiles/joint_explanatory_statement.pdf" target="_blank">$50,000 or more in delinquent debt</a>. So if your plan was to skip out on your debt, you won't get far.</p> <h2>6. The Government Could Seize Your Property</h2> <p>It's called a levy, and it means the <a href="https://www.irs.gov/businesses/small-businesses-self-employed/levy" target="_blank">IRS can take your Chevy</a>. Or your Ford, or your RV, or boat, or house. They can even garnish your wages or take what you owe right out of your checking account. If you think owing the mob is bad, try owing the federal government.</p> <p>In the IRS' defense, it doesn't start seizing citizens' property out of the blue. You'll get lots of mail warning that you're in default, telling you that you have the right to a hearing, and explaining that next, they're coming for your stuff. Don't ignore that mail.</p> <h2>7. You Could Pay Larger Penalties</h2> <p>If the IRS determines that your failure to pay in full was due to negligence or fraud, the penalties could <a href="https://www.law.cornell.edu/uscode/text/26/6662" target="_blank">climb to 20%</a> or <a href="https://www.irs.gov/irm/part25/irm_25-001-006.html" target="_blank">even 75%</a>.</p> <h2>8. You Could End Up in Court</h2> <p>The IRS would rather work with you to get the money. But if you're recalcitrant or showed intent to defraud them, they can charge you with one or more felonies. In 2008, they <a href="http://www.nytimes.com/2008/01/14/business/14tax.html?ref=business" target="_blank">charged actor Wesley Snipes</a> with conspiracy to defraud the government for refusing to pay taxes on $38 million in earnings. Snipes had joined a movement of tax deniers who interpret various laws to mean that paying taxes is not required.</p> <h2>9. You Could Go to Prison</h2> <p>Most people who owe the IRS don't do time. But Snipes did. He was convicted of three misdemeanors related to his failure to file tax returns and <a href="http://www.forbes.com/sites/robertwood/2015/04/10/10-notorious-tax-cheats-wesley-snipes-hired-tax-professionals-but-still-was-jailed/#4edc682341e2" target="_blank">served three years</a>. It could have been worse: Snipes was acquitted for the felonies he had been charged with.</p> <h2>10. Maybe Nothing Will Happen</h2> <p>If the government doesn't have record of your earnings &mdash; for instance, if you work for cash and don't get dividends on investments &mdash; the IRS may never notice if you don't file a tax return and don't pay a dime. But flaking on filing is definitely a bad idea: Not only will you live in fear of all the consequences mentioned above, but if your earnings are modest, you could be missing out on the <a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit" target="_blank">earned income tax credit</a> and other benefits of being on record as a wage earner, like the ability to get a mortgage loan.</p> <p>It's a good idea to keep in touch with the IRS if you owe them money. In fact, if you file your tax return, pay what you can, and then call them up, they may <a href="https://www.irs.gov/individuals/online-payment-agreement-application" target="_blank">work out a payment plan</a> with you, or even settle for <a href="https://www.irs.gov/individuals/offer-in-compromise-1" target="_blank">less than the full amount</a> you owe.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/heres-what-happens-if-you-dont-pay-your-taxes">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake">What to Do When Your Tax Preparer Makes a Mistake</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-if-you-have-a-tax-lien-on-your-house">What to Do If You Have a Tax Lien On Your House</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-tax-changes-for-2016">5 Important Tax Changes for 2016</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes court debt fees IRS jail late payments liens owing money passports payment plans penalties seize property tax day tax returns Fri, 03 Mar 2017 11:00:14 +0000 Carrie Kirby 1898661 at http://www.wisebread.com 8 Reasons You Should File Your Taxes as Soon as Possible http://www.wisebread.com/8-reasons-you-should-file-your-taxes-as-soon-as-possible <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-reasons-you-should-file-your-taxes-as-soon-as-possible" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-610688960.jpg" alt="Learning reasons you should file taxes as soon as possible" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>What do we want? A tax refund! When do we want it? Now!</p> <p>Here are eight reasons you should pick up the pace on your tax preparation and file well before this year's April 18 deadline.</p> <h2>1. You'll Get Your Refund Faster</h2> <p>Simple logic, folks: The sooner you file your returns, the faster you'll receive a refund (if you're owed one). The IRS says it issues nine out of 10 refunds within 21 days (sometimes less) with e-file and direct deposit. Use that money to get a head start on spring and summer home improvements, pay off debt sooner than later, or bulk up your emergency savings account.</p> <h2>2. Filing Online Is Easy</h2> <p>If your taxes aren't complicated &mdash; and they shouldn't be if you don't have multiple sources of income &mdash; filing online should be a walk in the park. Using <a href="http://www.tkqlhce.com/click-2822544-12747133" target="_blank">TurboTax online</a>, for example, is almost effortless, and it will help you submit an accurate return while also saving you money. Best of all, you can do it on your own time and in the comfort of your own home.</p> <h2>3. You'll Have Extra Time to Pay the Taxes You May Owe<strong> </strong></h2> <p>Filing early doesn't mean you have to pay the taxes you may owe immediately. In fact, it'll give you a decent window to figure out how to cover that cost, especially if you don't readily have it available. If you submit your tax return in February, for example, you still have until the April deadline to come up with payment.</p> <h2>4. Your Accountant Can Spend More Quality Time on Your Return<strong> </strong></h2> <p>I'm an entrepreneur, and I own a business that requires a decent amount of accounting at tax time. Admittedly, this is not something I want to handle on my own, which is why I have a CPA. I usually schedule my annual meeting with him mid- to late-February &mdash; before he's bombarded with his other clients' returns &mdash; so he can give mine the TLC it needs. If you have a lot of components to your own taxes, this is definitely a strategy to consider. You don't want to lose out on refund money because your accountant was in a hurry.</p> <h2>5. You Can Spend More Quality Time on Your Return</h2> <p>Even if you're handling your taxes on your own, it's still wise to give yourself ample time to prepare. A lot of information goes onto a return, and you need to ensure that everything is correct. Tax mistakes can be costly, but they can also be avoided if you plan ahead instead of trying to beat the clock at the last minute. Triple-check your numbers and personal information for accuracy. (See also: <a href="http://www.wisebread.com/5-common-tax-mistakes-we-need-to-stop-making?ref=seealso" target="_blank">5 Common Tax Mistakes We Need to Stop Making</a>)</p> <h2>6. You'll Reduce the Chance of Identity Theft</h2> <p>Identity theft is a major concern with regards to your finances, and even your tax return is at risk. Scammers can file fraudulent returns in unsuspecting taxpayers' names, but the chances of that happening are reduced the earlier you file. (See also: <a href="http://www.wisebread.com/beware-these-6-phony-irs-calls-and-emails?ref=seealso" target="_blank">Beware These 6 Phony IRS Calls and Emails</a>)</p> <h2>7. It'll Make Your Home-Buying Process Easier</h2> <p>I've bought several homes over the years, and it's very stressful. For one, the mortgage company needs every last piece of your financial information that they can get their hands on &mdash; and then some. Your homebuying process will go much smoother this time of year if you've already filed your taxes.</p> <h2>8. You'll Have Time to Help Advise Your Working Dependent Kids<strong> </strong></h2> <p>Your working children can also make mistakes on their own returns, filing as independents when they're clearly still dependents. Have a discussion with your kids about this designation &mdash; especially important to remember if they're away at college and filing on their own &mdash; so you don't miss out on deductions that <em>you </em>deserve.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/8-reasons-you-should-file-your-taxes-as-soon-as-possible">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-most-common-tax-questions-for-beginners-answered">The 7 Most Common Tax Questions for Beginners, Answered</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/get-your-money-sooner-by-starting-2016-tax-prep-now">Get Your Money Sooner by Starting 2016 Tax Prep Now</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-tax-return-mistakes-even-smart-people-make">8 Tax Return Mistakes Even Smart People Make</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake">What to Do When Your Tax Preparer Makes a Mistake</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes accounting dependents e-file home buying identity theft IRS kids refunds tax returns Tue, 28 Feb 2017 10:00:21 +0000 Mikey Rox 1897587 at http://www.wisebread.com The Easy Way to Do Your Taxes (Without Paying Someone Else) http://www.wisebread.com/the-easy-way-to-do-your-taxes-without-paying-someone-else <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-easy-way-to-do-your-taxes-without-paying-someone-else" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-539979144.jpg" alt="Woman finding an easy way to do her taxes" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Like clockwork, Tax Day comes every year. In 2017, it falls on Tuesday, April 18 (Wednesday, April 19 for residents of Maine and Massachusetts). If just the mention of taxes makes you nervous, or even stressed, you're not alone. Since 2007, the <a href="http://www.apa.org/news/press/releases/stress/index.aspx?tab=2" target="_blank">American Psychological Association</a> (APA) has been tracking the <a href="http://www.apa.org/news/press/releases/stress/index.aspx?tab=2" target="_blank">top causes of stress</a> for Americans and has found that money, including tax preparation, is consistently at the very top of the APA's list.</p> <p>While it may feel tempting to relieve this stress by paying somebody else to file your return, or buying expensive tax prep software, there is a long list of options to have your taxes prepared for free. Let's review what organizations offer free tax preparation services and what you can do to make the whole task&hellip; less taxing.</p> <h2>1. Free File Software From the IRS</h2> <p>Individuals who earned less than $64,000 in 2016 &mdash; 70% of Americans, according to the IRS &mdash; can file their federal taxes for free with <a href="https://www.irs.gov/uac/free-file-do-your-federal-taxes-for-free" target="_blank">Free File Software</a> from the IRS, a partnership of the IRS with eight software providers, including TaxSlayer, H&amp;R Block, and ezTaxReturn.com.</p> <p>In addition to free federal tax filing, most Free File Software partners offer free state tax filing for residents of states with income tax requirements. Some providers may charge a fee for filing state tax returns.</p> <h2>2. IRS Tax Volunteers</h2> <p>Looking to help the community by preparing taxes free of charge, many Americans receive training by the IRS and then volunteer at approved locations in their communities. IRS-certified tax volunteers participate in two main programs.</p> <h3>Volunteer Income Tax Assistance (VITA)</h3> <p>Individuals who make $54,000 or less, have disabilities, or have limited English proficiency have access to free basic income tax return preparation with IRS-certified volunteers through VITA. Qualifying taxpayers have their returns filed electronically.</p> <h3>Tax Counseling for the Elderly (TCE)</h3> <p>IRS-certified volunteers for the TCE program focus on taxpayers who are 60 years of age and older, and specialize in questions about pensions and retirement unique to seniors.</p> <p>Located at neighborhood centers, libraries, schools, shopping malls, and other convenient locations throughout the country, VITA and TCE sites can be found online through the <a href="https://irs.treasury.gov/freetaxprep/" target="_blank">VITA/TCE Locator Tool</a> or by calling 1-800-906-9887. Since many TCE sites are operated by the AARP's Foundation Tax Aide program between January and April, you can also use the <a href="https://secure.aarp.org/applications/VMISLocator/searchTaxAideLocations.action" target="_blank">AARP Site Locator Tool </a>or call 1-888-227-7669.</p> <h2>3. Free Tax Services at Universities and Colleges</h2> <p>Around the country, many student-run service organizations offer free tax assistance for low- to moderate-income individuals. Generally, these organizations offer free e-file for federal and state tax returns under the supervision of the IRS and CPA certified accounting faculty. Here are some examples:</p> <ul> <li>VITA site from the Accounting Department at <a href="http://accounting.dixie.edu/vita-free-tax-prep/" target="_blank">Dixie State University</a> in Utah;</li> <li>VITA site from <a href="https://www.york.cuny.edu/news/volunteer-income-tax-assistance-vita-program" target="_blank">York College</a> in New York;</li> <li>VITA site from <a href="https://www.stmarytx.edu/outreach/vita/" target="_blank">St. Mary's University</a> in Texas;</li> <li>VITA site from the <a href="http://www.uwest.edu/vita/" target="_blank">University of the West</a> in California;</li> <li>VITA site from the <a href="https://lsbe.d.umn.edu/about/academic-departments/accounting/vita" target="_blank">University of Minnesota Duluth</a>; and</li> <li>VITA site from the <a href="https://irs.treasury.gov/freetaxprep/jsp/direction.jsp?id=11406&amp;lng=-82.360613&amp;lat=29.650415" target="_blank">Levin College of Law at the University of Florida</a>.</li> </ul> <p>The majority of student-run organizations offering free tax assistance are also IRS-certified VITA sites. Keep in mind that free tax preparation programs at universities and colleges can only provide tax preparation to individuals making $54,000 or less. Student volunteers will most likely turn away small business owners and self-employed individuals because volunteers are limited to returns with certain types of income, including Wages and Salaries (Form W-2), Interest Income (Form 1099-INT), Dividends Received (Form 1099-DIV), Unemployment Compensation (Form 1099-G), IRA Distributions (Form 1099-R), Pension Income (Form 1099-R, Form RRB-1099), and Social Security Benefits (Form SSA-1099).</p> <p>Student-run tax prep organizations can generally help nonresidents on a student visa (F, J, M, or Q), or a teacher or trainee visa (J or Q), but may turn away those with dual citizenship because these types of individuals require much more complex tax prep.</p> <h2>4. Free Offers From Tax Preparation Companies</h2> <p>Commercial tax preparers and software providers also offer free software access to taxpayers filing certain types of returns. Here are two samples from well-known companies:</p> <ul> <li>H&amp;R Block: <a href="https://www.hrblock.com/online-tax-filing/free-online-tax-filing/" target="_blank">Free tax prep</a> for forms 1040EZ, 1040, 1040 with Schedule A, and some <a href="https://www.hrblock.com/pdf/HRB-Online-State-Forms.pdf" target="_blank">state tax forms</a>.</li> <li>TurboTax Federal Free Edition: <a href="https://turbotax.intuit.com/personal-taxes/online/free-edition.jsp" target="_blank">Free prep</a> of forms 1040EZ and 1040A and some state tax forms.</li> </ul> <p>Since no humans are involved when using free tax prep software, you're responsible for figuring out the answer to your questions and responding to audits from the IRS. Also, getting help from a company rep over the phone or via online chat may cost you additional fees.</p> <p>There are many offers available from online and brick-and-mortar providers. Since most of these free tax prep offers involve e-filing, it's a best practice to verify that they're authorized e-file providers by the IRS. Screen offers near you using the <a href="https://www.irs.gov/uac/authorized-irs-e-file-providers-for-individuals" target="_blank">IRS e-file Provider Locator</a>.</p> <h2>5. Free Tax Help From State Governments and Non-Profits</h2> <p>In an effort to help individuals and families with low-to-moderate income levels, many state governments provide free income tax preparation and electronic preparation through the Earned Income Tax Credit (EITC). Here are some examples:</p> <ul> <li>The Illinois Department of Human Services offers <a href="http://www.dhs.state.il.us/page.aspx?item=64531" target="_blank">free tax help</a> to individuals and families making up to $30,000 and $55,000 respectively per year.</li> <li>The Honolulu Community Action Program is offering <a href="http://www.hcapweb.org/income-tax-services/" target="_blank">free tax preparation to Hawaii residents</a> with $55,000 and under in annual income and with a relatively simple return.</li> </ul> <p>Contact your state government for a list of public and private organizations offering free tax preparation services.</p> <h2>Getting Ready for Free Tax Preparation</h2> <p>As you can imagine, any organization offering free tax preparation gets an avalanche of requests from taxpayers. Let's review some strategies to minimize the chances of being turned away or having to spend more time than necessary.</p> <h3>1. Know the Limitations of the Volunteers or Software</h3> <p>Free help is generally limited to more basic returns. For instance, if you're a small-business owner with questions on your Schedule C about how to take a tax deduction for your commercial refrigerator purchase, you're better off hiring a certified tax professional who can handle such complex tax scenarios. (See also: <a href="http://www.wisebread.com/4-times-you-should-splurge-and-hire-a-pro?ref=seealso" target="_blank">4 Times You Should Splurge and Hire a Pro</a>)</p> <p>Verify that you're eligible for free tax prep under the guidelines of the organization that you're trying to visit. If you have a tax form that you've never seen before, check with the organization whether or not the volunteers can handle it. Many of the organizations on this list post on their websites the forms that they can process.</p> <h3>2. Schedule an Appointment (If Applicable)</h3> <p>Many organizations offering in-person tax consultation and preparation require you to book an appointment in advance. Whenever this is possible, book one so you can have a guaranteed time slot.</p> <h3>3. Show Up Early and Don't Procrastinate</h3> <p>If you can't make an appointment, do your best to show up early. If an organization has a schedule of 2 p.m. to 7:30 p.m., you'll probably have a better chance of being helped by showing up at 3 p.m. than at 7:20 p.m. Since most of the tax prep options on this list are only open between January and April, try to visit way before Tax Day when volunteers are less likely to be busy.</p> <h3>4. Prepare for Appointment</h3> <p>Make sure you have all the documents you'll need listed below before you attend your appointment. If you do not have all necessary documents, you may be asked to make another appointment, if available.</p> <p>Bring:</p> <ul> <li>At least one form of government-issued ID;<br /> &nbsp;</li> <li>Your Social Security card to verify your Social Security Number, as well as the Social Security cards for any children you're claiming as dependents;<br /> &nbsp;</li> <li>All W-2 forms;<br /> &nbsp;</li> <li>All eligible 1099 forms, such as 1099-MISC, 1099-INT, SSA-1099, and 1099-DIV;<br /> &nbsp;</li> <li>Affordable Care Act Documents, such as 1095-A, 1095-B, and 1095-C;<br /> &nbsp;</li> <li>Form 1098, if you own real estate;<br /> &nbsp;</li> <li>Form 1098-T, Tuition Statement, if you're a college student;<br /> &nbsp;</li> <li>A copy of your last year's return (not always mandatory, but it helps volunteers a lot);<br /> &nbsp;</li> <li>Documentation proving marriage status when filing jointly (check for more potential requirements because a spouse may or not need to be present, depending on your unique tax situation);<br /> &nbsp;</li> <li>A voided check showing the routing and account numbers for the account that you want to use for direct deposit of your refund, if applicable;<br /> &nbsp;</li> <li>Receipts and supporting documents of any deductions that you plan to take; and<br /> &nbsp;</li> <li>Any additional forms that apply to your tax situation.</li> </ul> <p>This is a general list, but you may need additional documents or forms. Contact the tax preparation organization in advance or read the fine print of the software that you're planning to use to cross your T's and dot your I's. Best of luck in this tax season, you got this!</p> <h2 style="text-align: center;">Like this article? Pin it!&nbsp;</h2> <p>&nbsp;</p> <p style="text-align: center;"><a href="//www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fthe-easy-way-to-do-your-taxes-without-paying-someone-else&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThe%20Easy%20Way%20to%20Do%20Your%20Taxes%20(Without%20Paying%20Someone%20Else).jpg&amp;description=The%20Easy%20Way%20to%20Do%20Your%20Taxes%20(Without%20Paying%20Someone%20Else)" data-pin-do="buttonPin" data-pin-config="above" data-pin-color="red" data-pin-height="28"><img src="//assets.pinterest.com/images/pidgets/pinit_fg_en_rect_red_28.png" alt="" /></a> </p> <!-- Please call pinit.js only once per page --><!-- Please call pinit.js only once per page --><script type="text/javascript" async defer src="//assets.pinterest.com/js/pinit.js"></script></p> <p style="text-align: center;"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5180/The%20Easy%20Way%20to%20Do%20Your%20Taxes%20%28Without%20Paying%20Someone%20Else%29.jpg" alt="The Easy Way to Do Your Taxes (Without Paying Someone Else)" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/the-easy-way-to-do-your-taxes-without-paying-someone-else">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-if-you-have-a-tax-lien-on-your-house">What to Do If You Have a Tax Lien On Your House</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-can-you-do-if-you-cannot-afford-to-pay-your-taxes">What can you do if you cannot afford to pay your taxes</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/top-10-tax-urban-legends-myths-and-rumors">Top 10 Tax Urban Legends, Myths and Rumors.</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake">What to Do When Your Tax Preparer Makes a Mistake</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes aarp federal returns free government H&R Block IRS software state returns tax preparation tce turbo tax vita volunteers Wed, 22 Feb 2017 10:00:20 +0000 Damian Davila 1896808 at http://www.wisebread.com The 7 Most Common Tax Questions for Beginners, Answered http://www.wisebread.com/the-7-most-common-tax-questions-for-beginners-answered <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-7-most-common-tax-questions-for-beginners-answered" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-182251590.jpg" alt="Man learning answers to common tax questions" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>It's tax season: That joyous time when you look back on what you earned last year and figure out whether you gave enough of it to Uncle Sam. Think of it as Christmas for the government.</p> <p>If you're new to filing a tax return, the process can seem daunting. The forms have cryptic names. Making a mistake can have serious consequences, whether it's inadvertently paying too much, or paying too little and getting audited. A quick lesson in the basics of filing a tax return might help.</p> <p>Before we begin, a reminder: I'm not an accountant. If you have a question about your individual tax situation that you can't answer by consulting the <a href="https://www.irs.gov/" target="_blank">Internal Revenue Service</a>, ask a professional. (See also: <a href="http://www.wisebread.com/6-great-places-to-get-free-tax-advice?ref=seealso" target="_blank">6 Great Places to Get Free Tax Advice</a>)</p> <h2>1. Do I Have to File a Tax Return?</h2> <p>You may be surprised to learn that not all adults are required to fill out a federal tax form every year. According to the Internal Revenue Service, you could be off the hook if you earned less than $10,000, or if certain <a href="https://www.irs.com/articles/who-has-file-federal-income-tax-return" target="_blank">other criteria</a> were met. However, you may still want to file, because you could qualify for a tax credit that puts money back in your pocket. (More on that below.)</p> <h2>2. Do I Need to Hire an Accountant to File?</h2> <p>No. If your tax situation is simple &mdash; for instance, if all your income comes from your full-time job and your earnings are modest &mdash; your filing process should be straightforward. Of course, hiring an accountant could save you time. The IRS estimates that the &quot;short form,&quot; 1040A, takes about <a href="http://www.dontmesswithtaxes.com/2012/03/22-hours-needed-to-complete-form-1040.html" target="_blank">10 hours to file</a>.</p> <p>If you want to do your own taxes but are worried you'll make a mistake, using a tax prep website can be a good compromise. TurboTax, H&amp;R Block, and TaxAct all offer free versions for simple returns. If your taxes are a bit more complicated &mdash; for instance, if you want to search for possible deductions &mdash; you can get both state and federal taxes filed through these sites for between $40 and $100. (See also: <a href="http://www.wisebread.com/8-ways-to-file-your-taxes-for-free-in-2015?ref=seealso" target="_blank">8 Ways to File Your Taxes for Free</a>)</p> <h2>3. Where Do I Find Tax Forms?</h2> <p>If you file online, you don't need to locate forms &mdash; any of the websites mentioned above will ask you questions and then submit your return online. But if you want to take pencil to paper, you can print out tax forms from the <a href="https://www.irs.gov/" target="_blank">IRS website</a> or pick them up, along with instruction booklets, at a public library or post office.</p> <h2>4. What Money Do I Have to Pay Taxes On?</h2> <p>You have to pay taxes on almost any money you make, whether it's from working, selling something, or even <a href="http://www.wisebread.com/35-bizarre-things-you-can-be-taxed-on?ref=internal" target="_blank">finding buried treasure</a>. That said, there are plenty of exceptions, such as <a href="https://www.efile.com/tax/estate-gift-tax/" target="_blank">most gifts</a>, <a href="http://www.nolo.com/legal-encyclopedia/is-your-personal-injury-settlement-taxable.html" target="_blank">compensation for injuries</a>, proceeds from <a href="https://turbotax.intuit.com/tax-tools/tax-tips/Home-Ownership/Tax-Aspects-of-Home-Ownership--Selling-a-Home/INF12035.html" target="_blank">selling your home</a> (within limits), and investment gains inside certain retirement accounts (you'll pay taxes on the gains inside your IRA eventually, but not now).</p> <p>Getting paid in cash, making money doing something illegal, or working without documentation do not exempt you from paying taxes on the money you make.</p> <h2>5. Will I Get a Refund?</h2> <p>Most employers take money out of your check week after week, all year. Because no one knows exactly how much you're going to owe the IRS until the year ends, this withholding is merely an estimate. Once you work out your taxes, it may happen that the money taken out of your check every week turned out to be too much. If that happens, the IRS will refund the difference.</p> <p>On the other hand, if it turns out that the money withheld was less than your tax liability, you will have to send the IRS a check.</p> <p>Just because you got a refund last year doesn't mean you'll get one this year. Things change; for instance, if you made more money this year, you might have moved to a <a href="http://www.wisebread.com/tax-brackets-explained?ref=internal" target="_blank">higher tax bracket</a>, causing you to owe more.</p> <p>Moreover, getting a huge tax refund isn't necessarily a great thing. While receiving a fat check is always fun, what this really means is that you gave the government an interest-free loan all year. If you get a large refund this year, you should look into having the amount taken out of each paycheck reduced so that it doesn't happen again next year.</p> <h2>6. What's the Difference Between a Deduction, an Exemption, and a Credit?</h2> <p>All three are ways the tax code allows you to reduce the tax you owe.</p> <p>For the average taxpayer, an exemption and a deduction are practically the same thing: They both reduce the amount of your income that counts toward your taxable total. The most well-known exemption is for your children: For 2016, everyone gets to subtract $4,050 from their income for a dependent child living in the home.</p> <p>We get tax deductions for <a href="http://www.wisebread.com/heres-how-to-deduct-charitable-donations-on-your-taxes?ref=internal" target="_blank">charitable donations</a> we make, <a href="http://www.wisebread.com/what-if-the-mortgage-interest-deduction-went-away?ref=internal" target="_blank">mortgage interest</a>, and for some work-related expenses, among many other things. For example, if you earned $50,000 this year, donated $2,000, and spent $1,000 looking for work, your taxable income would be $47,000 (minus any other exemptions and deductions you have).</p> <p>Tax credits are subtracted directly from your tax bill, not your income. For instance, if your tax bill for the year is $5,000, but you can claim a $4,000 tax credit, you only have to pay $1,000.</p> <p>One of the most important tax credits to know about is the <a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/eitc-income-limits-maximum-credit-amounts" target="_blank">earned income tax credit</a>, a benefit for working people with low-to-moderate income. Qualifying families can receive between $3,373 and $6,269, depending on their number of qualifying children (or $506 for no qualifying children). The best part is, if your credit is more than you owe on taxes, you'll get the balance back as a &quot;refund.&quot;</p> <p>For instance, say you and your spouse owed $5,000 in taxes in 2016, but you qualified for the maximum credit of $6,269. The IRS would send you a refund check for $1,269 &mdash; plus any taxes that had been withheld from your paychecks. This is why it may be a very good idea to file a tax return even if you didn't earn enough for it to be required.</p> <h2>7. What If I File Late?</h2> <p>If you're not going to be able to submit your tax return and any tax owed by the deadline (in 2017, it's April 18), you should at least <a href="http://www.wisebread.com/filed-an-extension-heres-what-you-need-to-know?ref=internal" target="_blank">file for an extension</a> by that date. If you were expecting a refund, being late on submitting your forms isn't a big deal. But if you end up owing a payment, the IRS will charge late fees every month &mdash; so don't delay.</p> <p>Of course, it's never too late to pay money you owe to the IRS. If you failed to file or to pay what you owed in past years, you can file a &quot;back tax return&quot; now. If less than three years have gone by, you can even <a href="https://www.irs.gov/businesses/small-businesses-self-employed/filing-past-due-tax-returns" target="_blank">claim refunds for past years</a>.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/the-7-most-common-tax-questions-for-beginners-answered">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/get-your-money-sooner-by-starting-2016-tax-prep-now">Get Your Money Sooner by Starting 2016 Tax Prep Now</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-important-tax-changes-for-2016">5 Important Tax Changes for 2016</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-reasons-you-should-file-your-taxes-as-soon-as-possible">8 Reasons You Should File Your Taxes as Soon as Possible</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-tax-return-mistakes-even-smart-people-make">8 Tax Return Mistakes Even Smart People Make</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes beginners deductions earned income tax credit exemptions filing income IRS questions refunds tax returns withholdings Fri, 17 Feb 2017 10:00:18 +0000 Carrie Kirby 1890385 at http://www.wisebread.com Beware These 6 Phony IRS Calls and Emails http://www.wisebread.com/beware-these-6-phony-irs-calls-and-emails <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/beware-these-6-phony-irs-calls-and-emails" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-509629604.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="143" /></a> </div> </div> </div> <p>It's 2017. Most people aren't really thinking of filing taxes just yet, but they are starting to collect the information needed to file by the April deadline. That means the scammers are out in force again, ready to trick millions into submitting personal information, or to make payments that will go into the pockets of thieves.</p> <p>These six scams are the biggest offenders, and once again, they'll be used widely this year. Watch out for them.</p> <h2>1. The &quot;You've Got a Refund&quot; Email</h2> <p>Who doesn't love getting money back from the IRS? When you get this one in your inbox, you could certainly be fooled into thinking it's legitimate. Unlike many of the phishing emails, it appears to have decent grammar, it's well formatted, and it has something of an official look to it. What's more, the <a href="https://www.irs.gov/pub/irs-utl/phishing_email.pdf" target="_blank">refund isn't huge</a>. If it had stated you were getting many thousands back, you may pause for thought. But a small sum, under $100, is less likely to trigger alarm bells. It all seems legit. But, it's not. And by clicking the link in the email, you are going to a fraudulent site designed to collect personal and banking information.</p> <p>As the IRS clearly states on its website, it will never initiate contact with taxpayers over email, text messages, or social media channels. The main contact is snail mail, and while you may get actual calls, they will be easy to verify (more on that later).</p> <p>Do not look at the &quot;from&quot; email address, either. These can be simulated to look like they have come from an official agency. Look at the link address in the email; this will definitely be going to a site that tries to look official, but isn't, such as <a href="http://www.irs-gov.com/refund" title="www.irs-gov.com/refund">www.irs-gov.com/refund</a>. The bottom line: Any kind of &quot;you've got a refund&quot; email from the IRS is a scam, and should be <a href="https://www.irs.gov/uac/report-phishing" target="_blank">reported to them immediately</a>.</p> <h2>2. The &quot;The Bill Was Lost in the Mail&quot; Call</h2> <p>If you receive a call from the IRS saying you owe money, it's a scam. That's just a hard fact. The IRS clearly states on its website that it will never call you if you owe taxes, without first sending you a bill in the mail. Of course, thieves are getting wise to this being common knowledge, and are now saying that the bill must have gotten lost in the mail.</p> <p>At this point, you may well be put into a world of self-doubt; and that's when the scammer jumps on the opportunity. They hear the hesitation in your voice, and start alarming you. They will say that as the bill has been long overdue, you are now in serious trouble. You have to pay the back taxes immediately or risk going to jail. It's at this point that many people become so scared that they pay up. This is all a con, and you can easily verify this.</p> <p>For starters, a real IRS agent will not ask for money over the phone. If this is the request, hang up. They also will not threaten you with arrest or deportation. You can also ask for their IRS badge number and call back number. The scammer will hang up on you.</p> <h2>3. The &quot;Affordable Care Act&quot; Email</h2> <p>One of the downsides of the Affordable Care Act is that it is still quite new, and therefore, has many unknowns. There is even a page on the IRS website dedicated to the intricacies surrounding the <a href="https://www.irs.gov/affordable-care-act/individuals-and-families/the-affordable-care-act-whats-trending" target="_blank">new health care law</a>; and that is perfect fodder for a scammer. Where there is doubt, there is a chance to profit.</p> <p>The scam will come as an email (and in some rare cases, a letter) alerting you to something called a CP2000 notice. It's worth noting that this is, in fact, a real type of notice. But in this case, it's completely fake. The big giveaway is that it is issued from an Austin, Texas address, with a phony payment voucher number called a 105C.</p> <p>The scam uses language designed to scare you into paying the bill, and here's another huge red flag &mdash; the check should be made payable to &quot;I.R.S.&quot; at an Austin Processing Center address. If you receive anything like this via email, forward it to the IRS. They are currently <a href="https://www.irs.gov/uac/irs-and-security-summit-partners-warn-of-fake-tax-bill-emails" target="_blank">investigating this nasty scam</a>.</p> <h2>4. The &quot;Please Verify Your Tax Information&quot; Call</h2> <p>Not all IRS scams are designed for immediate profit. This one is designed to harvest your personal information, which can then be used for identity theft, or to actually grab a refund owed to you before you even claim it. In 2013, the IRS paid out over <a href="http://www.gao.gov/products/GAO-15-119" target="_blank">$5.8 billion in stolen tax refunds</a>, and the problem is not going away.</p> <p>As the scammer is not asking you to pay a bill, it can feel much less threatening. The fake agent will be very polite, and will say that the IRS needs to verify some information on a tax return you previously filed. They may even have some personal information that makes it sound like they have your file right there in front of them. But, the information they really want, like your SSN or bank details, will not be available.</p> <p>Questions will start out simple: &quot;I have your name as John S. Doe, could you spell that please?&quot; But this will quickly lead to &quot;And could you verify your social security number for me?&quot; At this point, the scammer won't have anything to work with, and is hoping you simply parrot back the response.</p> <p>Remember, the IRS will not call you asking for this kind of information. If you do have an issue with a former return, you will get an official notice in the mail, asking for the information to be verified. And if you doubt that, call the IRS directly.</p> <h2>5. The &quot;IRS Taxpayer Advocate&quot; Email</h2> <p>In 2014, the IRS warned of a new scam that was designed to solicit personal information, leading to identity theft and stolen tax refunds. This is known as the &quot;<a href="https://www.irs.gov/uac/newsroom/irs-warns-of-new-email-phishing-scheme-falsely-claiming-to-be-from-the-taxpayer-advocate-service" target="_blank">IRS Taxpayer Advocate Service</a>,&quot; and comes complete with a legitimate-looking case number, and language designed to grab sensitive personal and financial information.</p> <p>The email, which comes with a &quot;from&quot; address designed to look real, tells you that a former tax return you filed was flagged for review due to a document processing error. Once again, you will always be notified of any problems like this via regular mail, not email.</p> <p>The email will then say that you must click on a link to submit the missing or erroneous information, which will expedite the filing of the return to avoid any fees or charges. Of course, that link leads to a page hosted by the scammer, designed to collect and abuse your information.</p> <h2>6. The &quot;Federal Student Tax&quot; Call</h2> <p>A new tax scam surfaced last year, and it sadly tricked a few unsuspecting people into handing over iTunes gift cards, W-2 information, or tax return data. If that sounds a bit obvious, it's all done in a way that makes it feel legitimate.</p> <p>The scammer will call a student and tell them that they owe &quot;Federal Student Tax,&quot; which must be paid immediately. There's no such thing as the Federal Student Tax. It's a complete fabrication.</p> <p>However, the scammers have become much more sophisticated. For example, they are using caller ID spoofing to make the call look like it is coming from an official government line. Plus, information made available on the dark web can give them all sorts of information about the student's background. Together with a very professional sounding &quot;agent,&quot; this can all work to convince the student the tax must be paid. And often, they request the money in the form of gift cards, which is another huge red flag. Again, the IRS won't call and ask for money. If this is happening to you, or someone you know, tell them to hang up and <a href="https://www.irs.gov/uac/report-phishing" target="_blank">report the incident to the IRS</a>.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/beware-these-6-phony-irs-calls-and-emails">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-when-you-suspect-a-scam">What to Do When You Suspect a Scam</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/most-popular-ways-americans-spend-their-tax-refunds">Most Popular Ways Americans Spend Their Tax Refunds</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-spot-a-charity-scam-from-a-mile-away">How to Spot a Charity Scam From a Mile Away</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/top-three-tax-facts-to-know-for-2016">Top Three Tax Facts to Know for 2016</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-choose-the-best-tax-preparer">How to Choose the Best Tax Preparer</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes emails fraud IRS phishing scams safety scams tax refunds theft Wed, 25 Jan 2017 11:00:08 +0000 Paul Michael 1878111 at http://www.wisebread.com What Freelancers and Side Giggers Need to Know About Income Taxes http://www.wisebread.com/what-freelancers-and-side-giggers-need-to-know-about-income-taxes <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-freelancers-and-side-giggers-need-to-know-about-income-taxes" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/desk_hands_paperwork_623498764.jpg" alt="Freelancers learning what they need to know about income taxes" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The freelance lifestyle has numerous advantages &mdash; among them, freedom and flexibility. Even so, you can't escape your tax obligation to Uncle Sam, and being a freelancer poses its own challenges at tax time. Consider these factors that might impact your income taxes: (See also: <a href="http://www.wisebread.com/8-tax-return-mistakes-even-smart-people-make?ref=seealso" target="_blank">8 Tax Return Mistakes Even Smart People Make</a>)</p> <h2>1. Track All Forms 1099-MISC</h2> <p>Every client from whom you earn $600 or more in payments for services performed must file <a href="https://www.irs.gov/pub/irs-pdf/i1099msc.pdf" target="_blank">Form 1099-MISC, Miscellaneous Income</a> with the IRS. Like employer-issued W-2s, every time that a client issues you a 1099-MISC, the IRS receives a notification. They're essential in order to prove your income, so make sure to keep track of all of them. Generally, form 1099-MISC needs to be issued by January 31st. If you haven't received your form by February 15, request a duplicate from your client for your own records.</p> <h2>2. Include Income From All Sources</h2> <p>While a client isn't obligated to file a 1099-MISC when their total payments in the same year to you are under $600, you're still responsible to report those payments as taxable income in your return. The IRS charges a 25% inaccuracy penalty on top of applicable taxes and interest for late payments, including income from all sources, even when not reported on a 1099-MISC.</p> <p>(As a side note, we keep on specifically referring to a 1099-MISC by its full name because there are several types of 1099s, including 1099-DIV, 1099-G, 1099-H, and 1099-INT.)</p> <h2>3. Separate Individual and Business Finances</h2> <p>To help you track cash flows directly related to your business, open a separate business bank account and credit card. (See also: <a href="http://www.wisebread.com/the-5-best-credit-cards-for-small-businesses?ref=seealso" target="_blank">The 5 Best Credit Cards for Small Businesses</a>)</p> <p>The monthly statements of those business bank accounts and credit cards will allow you to reconcile your monthly income statement and will be very handy in case of an IRS audit. When shopping around for a business checking account, consider one that keeps copies of used checks. The reason is that bank statements and canceled checks are acceptable documents in case you receive a <a href="https://www.irsvideos.gov/audit/docs/Form%204564,%20IDR1%20-%20Howard.pdf" target="_blank">Form 4564, Information Document Request</a> from the IRS.</p> <h2>4. Hire an Accountant if Using Schedule C</h2> <p><a href="https://www.irs.gov/pub/irs-pdf/f1040sc.pdf" target="_blank">Schedule C</a> from Form 1040 is one the most useful tax forms for freelancers and side giggers because it allows them to deduct all applicable business expenses, ranging from cost of promotion in local media to use of home space for business purposes. (See also: <a href="http://www.wisebread.com/101-tax-deductions-for-bloggers-and-freelancers?ref=seealso" target="_blank">101 Tax Deductions for Bloggers and Freelancers</a>)</p> <p>However, individuals using Schedule C often make mistakes on this form. Whether those errors are intentional or unintentional, the IRS has noticed the higher number of mistakes and has set the policy of auditing individuals using Schedule C <a href="http://www.reuters.com/article/us-yourmoney-freelancing-irsaudit-idUSTRE81R1QR20120228" target="_blank">three times more often</a> than it does corporations. Hire an accountant to file your taxes and they will make sure to cross your t's and dot your i's throughout your return, including the pesky Schedule C. Not to mention, their fee is an eligible expense on your Schedule C, too!</p> <h2>5. Calculate Your Withholding</h2> <p>Unless you're a full-time freelancer, keeping track of your estimated tax liability can be hard. When you're receiving income from both an employer and portfolio clients, you'll have more sources of income. In that case, the <a href="https://www.irs.gov/individuals/irs-withholding-calculator" target="_blank">IRS Withholding Calculator</a> is a useful tool to avoid having too much or too little federal income tax withheld throughout the year.</p> <p>Analyzing data from your most recent pay stubs, invoices from your clients, and copies of past tax returns (they will help you estimate applicable deductions), this calculator will provide you suggestions on how to update your Form W-4 with your employer. Adjusting your W-4 throughout the year is a smart way to increase the take-home portion of paychecks from your employer when you're withholding more than you really need to.</p> <h2>6. Make Estimated Tax Payments</h2> <p>Due to the nature of freelancing, you may receive some last minute assignments that will make your bank account happy in the short term. Prevent those lucky breaks from turning into an unexpected large tax liability by the time you file your return next year. Whenever you expect a very large payment or an end-of-year assignment, use the IRS Withholding Calculator to estimate your necessary withholding.</p> <p>An alternative to adjusting your W-4 is to make a lump-sum payment using <a href="https://www.irs.gov/uac/form-1040-es-estimated-tax-for-individuals-1" target="_blank">Form 1040-ES, Estimated Tax for Individuals</a>, which allows you to pay estimated tax payments on April, June, and September of the current year and January of the next year. Form 1040-ES can be a lifesaver to compensate for extreme low withholding throughout the year. For example, you can submit a payment for tax year 2016 on January 17, 2017.</p> <h2>7. Don't Forget About State Income Tax</h2> <p>On top of federal income taxes, you're also liable for applicable state and local income taxes. Depending on the legal structure of your business, you may file business income taxes on a separate form. Sole proprietors report their personal and business income taxes on the same form.</p> <p>Spreading out your state tax liability is a better idea than trying to come up with a large lump sum in very few days. If you have an employer, you can also adjust your withholding of state taxes throughout the year. Most states allow freelancers and side giggers to submit estimated state tax payments on a quarterly basis. To learn more about your applicable state tax obligations, find the <a href="https://www.sba.gov/starting-business/filing-paying-taxes/determine-your-state-tax-obligations" target="_blank">appropriate office in your state or territory</a>.</p> <h2>8. Get Health Coverage</h2> <p>Under the Affordable Care Act (ACA), better known as Obamacare, you're subject to a penalty when you go more than two months without health coverage. In 2016 and 2017, the penalty fee is 1/12 per month of <a href="https://www.healthcare.gov/fees/fee-for-not-being-covered/" target="_blank">2.5% of your household income</a> or $695 per adult, whichever is higher. If you didn't meet the minimum essential coverage during 2016, use the IRS tool to estimate your <a href="https://taxpayeradvocate.irs.gov/estimator/isrp/" target="_blank">individual responsibility payment</a>.</p> <p>When you're a full-time freelancer, you're responsible for getting qualifying coverage on your own. January 31, 2017 is the last day to enroll or change a 2017 health plan. After that date, you can enroll or change plans only if you qualify for a special enrollment period. To learn more about available plans in your ZIP code, visit the health insurance marketplace at <a href="http://www.healthcare.gov" target="_blank">HealthCare.gov</a>.</p> <h2>9. Save for Retirement</h2> <p>Freelancers and side giggers with no employees can open a solo 401K to build or give their nest eggs a major boost. With a solo or Roth 401K, an independent contractor could save up to <a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits" target="_blank">$53,000 ($59,000 if age 50 or over)</a> in 2016 and $54,000 ($69,000 if age 50 or over) in 2017. By the way, married couples and legal partners receiving income from the same business practice can double those contribution limits. This means a couple under age 50 could potentially contribute up to $108,000 to a solo 401K in 2017!</p> <p>If you're one of the estimated 54 million of U.S. independent workers or freelancers, consider a solo 401K to lower your taxable income and get closer to the target amount of your retirement fund.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/what-freelancers-and-side-giggers-need-to-know-about-income-taxes">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-common-tax-mistakes-we-need-to-stop-making">5 Common Tax Mistakes We Need to Stop Making</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/heres-how-your-taxes-will-change-after-you-start-a-small-business">Here&#039;s How Your Taxes Will Change After You Start a Small Business</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/20-amazing-outrageous-and-just-plain-weird-tax-deductions">20 amazing, outrageous and just plain weird tax deductions</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-signs-you-probably-need-an-accountant">5 Signs You Probably Need an Accountant</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes 1040 1099 accountants audits income taxes IRS miscellaneous income schedule c self employment side jobs Fri, 20 Jan 2017 11:00:08 +0000 Damian Davila 1871080 at http://www.wisebread.com 5 Common Tax Mistakes We Need to Stop Making http://www.wisebread.com/5-common-tax-mistakes-we-need-to-stop-making <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-common-tax-mistakes-we-need-to-stop-making" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/magnifying_glass_paper_533045204.jpg" alt="Man making tax mistakes he needs to stop making" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>In an ongoing effort to prevent tax fraud and collect the right amount of money, the IRS audits close to <a href="http://time.com/money/3820009/irs-tax-audit-chances/" target="_blank">1% of all returns</a>. If being audited by the IRS isn't nerve racking enough, about 30% of audits are made in person, adding extra pressure. So, let's start 2017 on the right foot and review five ways to protect yourself from an audit.</p> <h2>1. Declare at Least $1 in Gross Income</h2> <p>Depending on your unique financial situation, you may not have gained any money throughout the year. However, declaring no adjusted gross income increases your probability of getting audited by more than fivefold! In 2014, the IRS audited 5.26% of all returns with no adjusted gross income. On the other hand, the IRS only audited 0.93% of returns declaring $1 to $24,999 in the same year.</p> <p>So, find a way to get some income and dramatically lower your chances of an audit!</p> <h2>2. Use an Accountant When Making Over $200,000</h2> <p>According to 2014 and 2015 IRS audit data, returns with gross incomes between $25,000 and $199,999 have the lowest range of probability of an audit.</p> <p>Like a Las Vegas casino, the IRS is currently chasing the &quot;whales&quot; &mdash; individuals with a high net worth. In 2014, 1.75% of returns with an unadjusted gross income of $200,000 to $499,999, and, get this &mdash; a whopping 10.53% of those with an adjusted gross income of $5 to $10 million, were audited. It seems that there's some truth to &quot;more money, more problems.&quot; So, if you're making a gross income of $200,000 or higher, hedge against the higher chances of potential IRS audit by using the services of an accountant. (See also: <a href="http://www.wisebread.com/4-times-you-should-splurge-and-hire-a-pro?ref=seealso" target="_blank">4 Times You Should Splurge and Hire a Pro</a>)</p> <h2>3. Include Income From All W-2s and 1099s</h2> <p>The IRS gets a copy of every single W-2 and 1099 form that you receive. So, forgetting to include the income reported on those forms to calculate your tax obligation or refund may result in an audit.</p> <p>While it's generally easy to trace back your W-2s, keep in mind that there are different types of 1099 forms, including:</p> <ul> <li>1099-C: Cancellation of Debt, which is sometimes a taxable event;<br /> &nbsp;</li> <li>1099-DIV: Dividend and Distribution Income;<br /> &nbsp;</li> <li>1099-H: Health Coverage Tax Credit (HCTC) advance payments;<br /> &nbsp;</li> <li>1099-INT: Interest Income;<br /> &nbsp;</li> <li>1099-MISC: Miscellaneous Income, which are payments to independent contractors; and<br /> &nbsp;</li> <li>SSA-1099: Social Security Benefit Statement.</li> </ul> <p>You will receive an applicable 1099 form after reaching certain thresholds. For example, you will receive a 1099-MISC when you received at least $600 in payment for your services as a freelancer or independent contractor. On the other hand, you only need to make at least $10 in interest income to receive a 1099-INT. Regardless of whether or not an organization issues you a 1099, include the taxable income in your return.</p> <p>If you haven't received a 1099 by January 31st, the IRS recommends contacting the issuing organization or the IRS directly at 1-800-829-1040 to request a substitute form.</p> <h2>4. Use Schedule C Correctly</h2> <p>The <a href="https://www.irs.gov/pub/irs-pdf/f1040sc.pdf" target="_blank">Schedule C</a> is a form in which sole proprietorships provide details on their calculations of net profit or loss. When used properly, Schedule C allows freelancers, independent contractors, and small business owners to effectively deduct businesses expenses, including expenses for business use of a home (<a href="https://www.irs.gov/pub/irs-pdf/f8829.pdf" target="_blank">Form 8829</a>).</p> <p>Taxpayers using Schedule C frequently make intentional or unintentional errors on this form. And the IRS has noted that it can get a better bang for its auditing buck in inspecting the returns of sole proprietorships. The result: Roughly <a href="http://www.reuters.com/article/us-yourmoney-freelancing-irsaudit-idUSTRE81R1QR20120228" target="_blank">3% of small businesses</a> under Schedule C get audited, compared to just 1% of corporations. The IRS pays close attention to businesses with large net losses and cash-intensive activities, such as car washes and food vendors.</p> <p>Make sure that you have supporting documentation, such as receipts, statements of personal and business bank accounts, and inventory count sheets for all the numbers that you include in Schedule C. For example, if you have an advertising expense, keep the bill or receipt as proof of that expense. If the IRS were to have reasonable doubt that your numbers are accurate, the agency would send you a Form 4564, Information Document Request. Be proactive, review this <a href="https://www.irsvideos.gov/audit/docs/Form%204564,%20IDR1%20-%20Howard.pdf" target="_blank">sample Form 4564</a> from the IRS, and make sure to keep the type of records that the IRS would ask from you in case of an audit due to a Schedule C.</p> <p>In the end, a taxpayer using Schedule C could benefit from using a professional tax preparer. They can also deduct that expense in their Schedule C, after all.</p> <h2>5. Automate Calculations</h2> <p>Completing your tax return by hand increases your odds of making math errors, miscalculating work sheets, and misreading tables. Just in 2015, the IRS sent out <a href="https://www.irs.gov/pub/irs-soi/15databk.pdf" target="_blank">1,679,367 math error notices</a> to taxpayers for a total of 2,177,802 math errors!</p> <p>To decrease your chance of computational errors, incorrectly transcribed values, and omitted entries, consider hiring a pro that will double check all the work for you or using a tax preparation software that will do all the calculations for you.</p> <h2>The Bottom Line: Prevent That Audit!</h2> <p>Better safe than sorry. If the IRS notifies you of an audit by phone or mail (no emails!), you are most likely to either have to pay extra or experience no change. In 2015, only 3.33% of examined individual income tax returns resulted in additional refunds to the taxpayer. Take action and use these five ways to prevent common tax mistakes that increase your chances of an IRS audit.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/5-common-tax-mistakes-we-need-to-stop-making">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-freelancers-and-side-giggers-need-to-know-about-income-taxes">What Freelancers and Side Giggers Need to Know About Income Taxes</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-easiest-way-to-avoid-a-tax-audit">The Easiest Way to Avoid a Tax Audit</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-signs-you-probably-need-an-accountant">5 Signs You Probably Need an Accountant</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/avoid-the-tax-season-rush-with-these-early-prep-steps">Avoid the Tax Season Rush With These Early Prep Steps</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes 1099 accountants audits declaring income deductions gross income IRS schedule c tax mistakes w-2 Wed, 18 Jan 2017 10:00:14 +0000 Damian Davila 1870060 at http://www.wisebread.com 35 Bizarre Things You Can Be Taxed On http://www.wisebread.com/35-bizarre-things-you-can-be-taxed-on <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/35-bizarre-things-you-can-be-taxed-on" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-516281044.jpg" alt="you can be taxed on these bizarre things" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Once the Yuletide log burns out and the New Year's ball drops, it's soon time for a less-joyful annual tradition: Calculating how much money you owe the Internal Revenue Service.</p> <p>We all know that Uncle Sam takes a share of our earnings, but have you considered other events in the past year that you may owe taxes on? You might be surprised at all the ways Uncle Sam can lighten your wallet.</p> <p><em>Note: I'm not an accountant. Consult a tax professional for advice on your personal situation.</em></p> <h2>1. You Caught a Baseball</h2> <p>You are the lucky fan who catches a historic home run ball from the outfield bleachers. The not-so-lucky part? The IRS could hold you responsible for the <a href="http://www.wsj.com/articles/SB118532191532076935" target="_blank">resale value of the ball</a> as soon as it hits your glove &mdash; even if you weren't planning to sell it.</p> <h2>2. You Found a Pot of Gold</h2> <p>You finally found the cache at the end of the rainbow. Or maybe you found a stash of rare baseball cards hidden in the wall of your home during a remodel, or a treasure chest while scuba diving in a shipwreck. Under the same regulation that applies to the baseball, the <a href="https://www.irs.gov/publications/p17/ch12.html" target="_blank">treasure trove rule</a>, that windfall is taxable to you the first year that you find it. Sadly, this means that you may be forced to sell all or part of your find even if you wanted to keep it.</p> <h2>3. You Held Up a Liquor Store</h2> <p>It doesn't matter if you got it illegally: Stolen money or property should be reported, lest a tax evasion charge be added to your legal woes when you get caught. Says the IRS, &quot;If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.&quot;</p> <h2>4. You Accepted Hush Money</h2> <p>The IRS is blunt on this one: &quot;If you receive a bribe, include it in your income.&quot;</p> <h2>5. You Dealt in Illegal Goods</h2> <p>If you made money dealing drugs or by any other illegal form of self employment, the IRS requires you to <a href="https://www.irs.gov/publications/p17/ch12.html" target="_blank">report it on Schedule C</a>.</p> <h2>6. You Hit the Jackpot</h2> <p>Yes, you have to pay taxes on your lottery prize. Yes, if you have been buying lottery tickets all year, you can also deduct the expenses. But you have to keep a <a href="https://www.irs.gov/publications/p17/ch28.html#en_US_2015_publink1000174141" target="_blank">diary of wins and losses</a>, and the IRS has specific instructions on how to do that.</p> <h2>7. You Stuck the Landing and Won Gold</h2> <p>It's estimated that Michael Phelps <a href="http://www.usatoday.com/story/money/personalfinance/2016/08/15/olympics-victory-tax-gold-medal/88587636/" target="_blank">will owe $55,000</a> to the IRS on his Rio winnings &mdash; the medals and the cash prizes that come with each are taxable. Many other Rio champions will get off scot free, however. That's because Congress recently passed a law to exempt Olympians from &quot;victory taxes&quot; &mdash; but only for athletes who earn a million dollars a year or less. Phelps earned an estimated $12 million in endorsements alone in 2016, so he doesn't get that break.</p> <h2>8. You Got a McArthur Genius Grant</h2> <p>It would feel great to win this $625,000 no-strings stipend, or the approximately $1 million that comes with the Nobel Prize. That good feeling won't protect you from the tax bite, though. You're required to pay taxes on all such awards &mdash; unless you have them <a href="https://www.irs.gov/publications/p17/ch12.html" target="_blank">directly transferred to a recognized charity</a>. That's what President Obama did with his 2009 Nobel Peace Prize winnings.</p> <h2>9. You Are Gifted</h2> <p>Usually, the presents you unwrap over the holidays come to you tax-free, but there are some exceptions. Cash or a gift card from your boss is taxable as a fringe benefit. A hostess gift you receive as a thank-you for having a sales party in your home is <a href="https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/Taxable-Income-vs--Nontaxable-Income--What-You-Should-Know/INF26326.html" target="_blank">taxed as miscellaneous income</a>. <a href="http://blog.taxact.com/gift-tax-do-i-have-to-pay-gift-tax-when-someone-gives-me-money/" target="_blank">Personal gifts</a>, though, are generally safe from the tax man.</p> <h2>10. You Airbnb'd Your Pad</h2> <p>Just like regular rent payments, money you earn by hosting Airbnb guests is counted as <a href="http://assets.airbnb.com/eyguidance/us.pdf" target="_blank">part of your gross income</a>. The exception: You don't have to pay if you live in the home and rent it out for <a href="https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/10-Tax-Tips-for-Airbnb--HomeAway---VRBO-Vacation-Rentals/INF29184.html" target="_blank">two weeks or less per year</a>.</p> <h2>11. You Got Your Social Security Check</h2> <p>It may seem nonsensical that the government pays people and then <a href="https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/social-security-income/regular-disability-benefits/regular-disability-benefits" target="_blank">collects tax money</a> on those payments, but that's how it goes. However, SSI, or disability benefits, are not taxable.</p> <h2>12. You Divorced Well</h2> <p>Alimony you receive from your ex is <a href="https://www.irs.gov/publications/p17/ch18.html" target="_blank">taxable income</a>, but child support payments are not. For this reason, it's important to know how payments are categorized in your divorce settlement.</p> <h2>13. You Won a Scholarship</h2> <p>If you win a grant that covers your tuition and books, that's tax-free. But if it pays for <a href="https://www.irs.gov/publications/p970/ch01.html#en_US_2015_publink1000178003" target="_blank">room and board or travel</a>, pay up.</p> <h2>14. Your Fantasy Football Team Won the Super Bowl</h2> <p>If you win at least $600 worth of cash and prizes from a business operating a <a href="http://newsroom.hrblock.com/tax-tip-it-may-be-fantasy-football-but-tax-implications-are-real" target="_blank">fantasy sports league</a>, they'll file a 1099-MISC with the IRS. But even if you win less or your league is informal, you are still supposed to pay on your winnings.</p> <h2>15. Triple 7s Came Up</h2> <p>Just like with the lottery, the IRS gets a cut of your casino winnings once they surpass the amount you document losing. Usually it's a <a href="http://www.efile.com/taxable-gambling-winnings-income-taxes/" target="_blank">flat 25%</a>.</p> <h2>16. You Spun the Wheel of Fortune</h2> <p>It's simple enough to pay the tax if you win a cash prize, but if you win a car or vacation, you still owe tax on its value &mdash; which can be tough to pay if you didn't <em>also</em> win cash. Because of this, it's often wise to take the cash equivalent of a prize if offered.</p> <h2>17. Your Debt Was Forgiven</h2> <p>The IRS is very specific about this: If a debt is cancelled as a gift to you &mdash; for example, if Grandpa says, &quot;Merry Christmas, you no longer owe me for that time I bailed you out!&quot; &mdash; you <a href="https://www.irs.gov/publications/p17/ch12.html" target="_blank">don't have to pay taxes</a>. Otherwise, you <em>do</em>.</p> <h2>18. You Traded a Haircut for Cigarettes</h2> <p>This may surprise you, but if you receive goods or services in exchange for services you render, the IRS expects you to <a href="https://www.irs.gov/taxtopics/tc420.html" target="_blank">include the value of those</a> in your gross taxable income.</p> <h2>19. The Boss Lets You Take the Ice Cream Truck Camping</h2> <p>If you drive your company car to work and home, or use it on weekends, this is a <a href="http://smallbusiness.chron.com/irs-taxable-fringe-benefits-company-car-15565.html" target="_blank">taxable fringe benefit</a> and you should be tracking and reporting your personal miles.</p> <h2>20. Your Bitcoins Doubled in Value</h2> <p>Bitcoin is a virtual currency that is represented by computer code, but it can be used to buy real goods and services. So of course, the IRS considers gains in this or <a href="http://www.forbes.com/sites/laurashin/2015/12/16/bitcoin-at-tax-time-what-you-need-to-know-about-trading-tipping-mining-and-more/#20c59ae46692" target="_blank">any other virtual currency taxable</a>. It's considered a capital asset like stocks and bonds, so if you buy Bitcoins low and sell them high, the difference is your profit. But it can be even more complicated than that: If you create new Bitcoins by mining, you have to count those as income, too.</p> <h2>21. You Got a Blogger Freebie</h2> <p>If a widget maker sends you their SuperWidget 2000 to review and you get to keep it, you just received a taxable payment. However, you don't owe taxes on the market value of the product &mdash; just what the company agrees it's worth. Make sure to put an agreed-upon value in your contract.</p> <h2>22. You Sold Stuff on eBay</h2> <p>If you occasionally sell your kids' outgrown clothes on eBay, you won't owe taxes because you most likely took a loss on the items. But if you create a resale business on eBay, you better believe you have to <a href="http://smallbusiness.chron.com/claim-ebay-sales-taxes-59661.html" target="_blank">report your profits</a>.</p> <h2>23. You Had a Yard Sale</h2> <p>Like eBay, most yard sale transactions are <a href="http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2009/05/are-garage-sale-proceeds-taxable.html" target="_blank">not income producers</a>, but if you're one of those people who holds a sale every weekend and resells stuff at a profit, do the right thing.</p> <h2>24. You're a Child Entrepreneur</h2> <p>Starting a small business, whether it's dog walking or selling handmade items, can be a great activity for a tween or teen. But don't expect them to be IRS-exempt just because they're kids. If the <a href="http://www.marketwatch.com/story/does-uncle-sam-tax-lemonade-stands-2013-07-08" target="_blank">business earns more than $400</a>, file a tax return.</p> <h2>25. You Set Up a GoFundMe Campaign</h2> <p>This is one of those tricky gray areas. If you start a crowdfunding benefit for someone in need, the donations should be considered personal gifts. But if the gifts run into the large numbers, the crowdfunding site may file a 1099, reporting the transaction to the IRS. A word to the wise: If you are setting up a crowdfunding campaign for a needy friend, <a href="http://www.huffingtonpost.com/steve-rhode/crowdfunding-to-help-a-sick-friend-can-lead-to-a-big-tax-bill-for-you_b_6615616.html" target="_blank">make sure it's in their name</a> so you don't end up wondering if you need to pay taxes on money you handed over to them. And consult an accountant before going down this route.</p> <h2>26. You Asked for Spare Change</h2> <p>There are differing opinions out there over whether quarters dropped in a panhandler's cup are considered earned income or a gift. Since panhandlers tend to live below the poverty line, they probably wouldn't owe any income taxes, either way. A more pressing issue for many would be whether the panhandling counts as earned income, qualifying recipients for the earned income tax credit, which could lead to a cash payment from the IRS even if the panhandler pays no taxes.</p> <h2>27. You Received Punitive Damages</h2> <p>Court settlements vary in their tax treatment. If you get a settlement in court to compensate you for a physical injury or emotional distress stemming from an injury, the money isn't taxable. But if you get paid for emotional distress not tied to an injury, or you receive punitive damages, <a href="https://www.irs.gov/pub/irs-pdf/p4345.pdf" target="_blank">you have to pay</a>.</p> <h2>28. You Cashed in Your Life Insurance Policy</h2> <p>If you die, your beneficiaries probably won't be taxed on your life insurance payout. But if you cash it in while you're alive? Any <a href="https://www.ameriprise.com/research-market-insights/tax-center/tax-planning/taxation-of-life-insurance/" target="_blank">profit you made on the policy</a> &mdash; that is, the value in excess of premiums paid &mdash; is taxable.</p> <h2>29. Your Champion Pug Had a Litter</h2> <p>Whether you breed your dog as a business or a hobby, money made <a href="http://www.akc.org/content/dog-breeding/articles/tax-tips-for-dog-breeders/" target="_blank">selling puppies is taxable income</a>. However, it's also not cheap to breed and raise puppies, so once you deduct stud fees and all those vet bills, you may not actually show a taxable profit for your prize pups.</p> <h2>30. You Put on the Red Light</h2> <p>Just like dealing drugs, if you sell your body in a jurisdiction where that's illegal, you still have to <a href="http://www.slate.com/articles/news_and_politics/explainer/2009/09/how_do_prostitutes_pay_their_taxes.html" target="_blank">report the income on Schedule C</a>. In fact, smart high-earning prostitutes declare their income to put themselves into the position to buy a house or get credit.</p> <h2>31. You Couldn't Get Out of Jury Duty</h2> <p>If you got $15 for sitting on a jury, that's taxable income, even if you turn it over to your employer. However, if you did turn it over to your employer, you also put in a <a href="https://apps.irs.gov/app/vita/content/17/17_08_005.jsp" target="_blank">deduction for the same amount</a> on your tax form so your gross income will remain the same.</p> <h2>32. You Got a Tax Refund</h2> <p>Last year's state and federal refunds are <a href="https://www.taxslayer.com/support/knowledgebasearticle324.aspx" target="_blank">taxable in some situations</a>.</p> <h2>33. You Exercised Stock Options</h2> <p>This is one that has gotten a lot of tech workers into financial hot water. If your company gives you stock options, that's not a taxable event. But when you exercise the option by purchasing stock in your employer at a discount, <a href="http://www.investopedia.com/articles/optioninvestor/07/esoabout.asp" target="_blank">that is a taxable event</a> even if you don't sell the stock right away. This can go bad if the stock declines in value after you exercise the option, because now you may owe the IRS more money than you can raise by selling the stock.</p> <h2>34. Your Landlord Is Paying You to Get Out</h2> <p>In rent-controlled areas with high demand, such as San Francisco, it's common for landlords to buy tenants out. This is often referred to as a relocation assistance. This is taxable, but whether to treat it as regular income or a capital gain is dicey, so you may need professional help with that one.</p> <h2>35. You Are an Undocumented Worker</h2> <p>Despite a common belief that undocumented immigrants don't contribute to society with tax dollars, anyone working in the U.S. is legally required to pay taxes, papers or not. And they do pay. Studies show about half of people working illegally are paying income tax, resulting in about <a href="http://www.usnews.com/news/articles/2016-03-01/study-undocumented-immigrants-pay-billions-in-taxes" target="_blank">$12 billion per year</a> in state and local revenue.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/carrie-kirby">Carrie Kirby</a> of <a href="http://www.wisebread.com/35-bizarre-things-you-can-be-taxed-on">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/20-amazing-outrageous-and-just-plain-weird-tax-deductions">20 amazing, outrageous and just plain weird tax deductions</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-freelancers-and-side-giggers-need-to-know-about-income-taxes">What Freelancers and Side Giggers Need to Know About Income Taxes</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-signs-you-probably-need-an-accountant">5 Signs You Probably Need an Accountant</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-lessons-from-tax-day-to-remember-for-next-year">7 Lessons From Tax Day to Remember for Next Year</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-when-your-tax-preparer-makes-a-mistake">What to Do When Your Tax Preparer Makes a Mistake</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes bizarre taxes eBay entrepreneurs gambling illegal income taxes IRS prizes real estate selling sports winnings Mon, 19 Dec 2016 10:00:08 +0000 Carrie Kirby 1855930 at http://www.wisebread.com Get Your Money Sooner by Starting 2016 Tax Prep Now http://www.wisebread.com/get-your-money-sooner-by-starting-2016-tax-prep-now <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/get-your-money-sooner-by-starting-2016-tax-prep-now" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_work_clock_485696494.jpg" alt="Woman getting money sooner by starting tax prep" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Good news, U.S. taxpayers!</p> <p>In 2017, Tax Day is pushed back to Tuesday April 18th, because April 15th falls on a Saturday and the Emancipation Day holiday (anniversary of the signing of the Compensated Emancipation Act by President Abraham Lincoln) is pushed to Monday April 17th. Residents of Maine and Massachusetts get an extra day to file federal taxes because Patriots Day falls on April 18th, 2017.</p> <p>However, getting a head start on your return is a better strategy than waiting until April 18th or 19th, depending on your state of residence. From increasing the take-home from your remaining paychecks for the year to making the most out of a bonus check in the first few weeks of 2017, let's review five reasons why it pays off to prep for the 2016 tax season now.</p> <h2>1. Avoid Withholding More Than You Need To</h2> <p>Nearly eight out of 10 U.S. tax filers <a href="http://money.cnn.com/2015/01/13/pf/taxes/taxpayer-refunds/">get tax refunds</a>. This isn't good for two reasons. First, those individuals have to get throughout the year with fewer dollars. The average <a href="https://www.irs.gov/uac/newsroom/filing-season-statistics-for-week-ending-oct-21-2016">refund for the 2016 tax season</a> was $2,777, or roughly $230 per month. Wouldn't an extra $230 per month for a full year provide more breathing room in your budget and help you pay down high-interest debt faster? Second, the IRS pays you no interest on the refund from your current year. Now, that's a double whammy.</p> <p>To find out whether or not you have already withheld enough for this tax season, use the <a href="https://www.irs.gov/individuals/irs-withholding-calculator">IRS Withholding Calculator</a> and find out how to adjust your Form W-4. Chances are that you will be able to take home more money from your last paychecks from 2016 and avoid having to put those holiday purchases on credit.</p> <h2>2. Spread Out Tax Liability</h2> <p>Of course, using the IRS Withholding Calculator may reveal that you're behind your estimated tax liability. In that case, finding out earlier allows you to take several steps to avoid a huge lump-sum payment next year. Here is your game plan:</p> <ul> <li>Adjust your filing status, number of allowances, and number of dependents on Form W-4 according to the instructions from the IRS Withhold Calculator to increase withholding on the next few paychecks;<br /> &nbsp;</li> <li>Input an additional amount, if any, you want withheld from each paycheck on line six of Form W-4; or<br /> &nbsp;</li> <li>Submit an additional estimated tax payment with the fourth voucher from <a href="https://www.irs.gov/pub/irs-pdf/f1040es.pdf">Form 1040-ES</a> due on January 17, 2017.</li> </ul> <h2>3. Boost Retirement Account Contributions</h2> <p>In 2016, you can contribute up to $18,000 ($24,000 when age 50 and over) to your 401K and up to $5,500 ($6,500 when age 50 and over) to your IRA. The catch is that all of your contributions to an employer-sponsored retirement account must be turned by your last paycheck. Even though you can technically submit contributions to your employer-sponsored retirement account until December 31, 2016, your last paycheck may fall on, let's say, December 23rd.</p> <p>If you know that you still have a lot of room before you hit the maximum contribution limit for your 401K, you're in time to increase the contribution percentage from your paycheck for the remainder of the year. Act fast because some employers may make changes effective anywhere from one to four weeks.</p> <p>In the event that you don't have a retirement account, find out whether or not you're eligible to set one up by December 31, 2016. As long as you set up your 401K or IRA by this date, any contributions to your retirement account that your employer makes through a commission check or bonus next year before Tax Day or the day that you file your return, whichever is earlier, reduce your taxable income for 2016! (See also: <a href="http://www.wisebread.com/6-smart-things-to-do-with-your-bonus?ref=seealso">6 Smart Things to Do With Your Bonus</a>)</p> <h2>4. Get Your Refund Faster</h2> <p>The IRS issues tax refunds generally in <a href="https://www.irs.gov/refunds/tax-season-refund-frequently-asked-questions">less than 21 calendar days</a>. By submitting your tax return earlier, you're increasing your chances of getting your return processed faster. By February 5, 2016, the IRS had received 26,670,000 returns and processed 26,133,000 of those returns. That's a 97.98% processing rate &mdash; not too bad. Fast forward to April 22, 2016, the number of returns received by the IRS ballooned to 136,528,000 and the processing rate drops by 3%. The early (tax) bird gets the worm (faster).</p> <p>Completing your federal return early also helps you get your state refund faster. Remember that this year many states increased the required processing time due to new tax fraud prevention procedures. For example, the Hawaii State Department of Taxation increased the processing window from six to eight weeks to <a href="http://khon2.com/2015/04/08/state-tax-refunds-delayed-further-by-new-fraud-prevention-procedures/">approximately 10 to 14 weeks</a>.</p> <p>To help increase the odds of a faster refund, opt to file your return electronically, whenever possible, and receive your refund via direct deposit. (See also: <a href="http://www.wisebread.com/8-tax-return-mistakes-even-smart-people-make?ref=seealso">8 Tax Return Mistakes Even Smart People Make</a>)</p> <h2>5. Prevent Tax Identity Theft</h2> <p>Last but not least, a key benefit of preparing and submitting your 2016 tax return early is that it prevents tax-related identity theft. Here's a sample. As of February 29, 2016, the IRS had identified <a href="https://www.treasury.gov/tigta/auditreports/2016reports/201640034fr.pdf">31,578 fraudulent tax returns</a> involving identity theft. Just six days later, the number of identified fraudulent tax returns increased by over 10,500!</p> <p>When it comes to filing your return, every single day counts. The longer you wait, the higher your chance in becoming the next victim of tax-related identity theft.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/get-your-money-sooner-by-starting-2016-tax-prep-now">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-most-common-tax-questions-for-beginners-answered">The 7 Most Common Tax Questions for Beginners, Answered</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/top-three-tax-facts-to-know-for-2016">Top Three Tax Facts to Know for 2016</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-reasons-you-should-file-your-taxes-as-soon-as-possible">8 Reasons You Should File Your Taxes as Soon as Possible</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-to-do-if-you-have-a-tax-lien-on-your-house">What to Do If You Have a Tax Lien On Your House</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Taxes benefits early filing identity theft IRS refunds tax day tax prep Tax Season taxpayers withholdings Wed, 30 Nov 2016 11:00:07 +0000 Damian Davila 1843962 at http://www.wisebread.com 11 Surprising Things Your HSA Will Cover http://www.wisebread.com/11-surprising-things-your-hsa-will-cover <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/11-surprising-things-your-hsa-will-cover" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_sunglasses_happy_91229393.jpg" alt="Woman finding surprising things her HSA covers" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p><a href="http://www.wisebread.com/how-an-hsa-saves-you-money">Health Savings Accounts</a> (HSAs) are medical bank accounts that are paired with low premium, high deductible health insurance policies. The high deductible/low premium insurance policy is counterbalanced by the ability for the individual to save income that is not subject to federal or state taxes. The money in the HSA can then be spent on IRS approved medical expenses.</p> <p>If you have an HSA and you have only used it to pay doctor's bills, you might be missing out on some real tax savings. Why spend taxed money on IRS approved medical expenses, when you can utilize pretax dollars? Check out 11 items you can purchase with your HSA.</p> <h2>1. Allergy Medication</h2> <p>If you have allergies (either food or environmental) that you need medication for, you can purchase prescription medication with your HSA. Over the counter medication cannot be purchased with your HSA, unless prescribed by a doctor.</p> <h2>2. Arch Supports</h2> <p>Purchasing arch supports are sometimes necessary for a pain-free life, and they can cost anywhere from $5 to $150. Custom or mass produced arch supports can be an HSA-approved medical expense if you receive a prescription from your doctor.</p> <h2>3. Bandages and Band-Aids</h2> <p>Over the counter bandages and Band-Aids can be purchased with your HSA.</p> <h2>4. Birth Control</h2> <p>Both over-the-counter and prescription birth control are HSA-approved medical expenses. Here are just a few of the items you can purchase with your health savings account: IUD, Norplant, condoms, spermicide, and pregnancy test kits.</p> <h2>5. Braille Books or Magazines</h2> <p>If you are vision-impaired, you can utilize your HSA to reimburse yourself part of the money from purchasing Braille books or magazines. In order to calculate how much you can reimburse yourself, you should utilize this formula: cost of Braille book less cost of the traditional book equals HSA approved reimbursement.</p> <h2>6. Contact Lens Solution</h2> <p>If you wear contact lenses, you can purchase the solution necessary to clean the lenses with your health savings account.</p> <h2>7. Guide Animals</h2> <p>The costs of purchasing, training, and caring for guide animals are an IRS-approved HSA expense. You will need to register your service animal in your state in order to utilize this HSA-approved expense. (If you try to say that a non-qualified animal you own is a service animal, the likelihood of being fined will be high.)</p> <h2>8. Lead Paint Removal</h2> <p>If you live in a home with lead paint, and your child has or has had lead paint poisoning, you can pay for the paint to be removed with your HSA.</p> <h2>9. Mouth Guards</h2> <p>Mouth guards that have been prescribed by a dentist due to teeth grinding can be paid for with your health savings account.</p> <h2>10. Prescription Sunglasses</h2> <p>Prescription sunglasses can be an expensive necessity for the vision-challenged. If you either cannot or will not switch to contact lenses, you're stuck with purchasing prescription sunglasses or going without. You can, if you want, pay for the prescription sunglasses with your HSA. If you want to save money on the second pair, you might consider asking for the prescription and shopping around at various chain eyeglass stores.</p> <h2>11. Prescription Goggles</h2> <p>If you spend a lot of time swimming or diving, you need to ditch your glasses for long periods of time. This can make your adventure (or job) harder and less enjoyable. Like sunglasses, goggles can be purchased with your HSA. (You might need to check online to determine if anyone in your areas sells prescription goggles).</p> <p>A Health Savings Account can be a great way for the relatively healthy individuals to save money on medical expenses. Just remember that as you make purchases with your HSA to file copies of your prescriptions and receipts with your tax returns. You'll need them if the IRS decides to audit you. If you can't prove the expenses were HSA approved expenses, you might end up paying a fine (even if you followed the rules).</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/samantha-stauf">Samantha Stauf</a> of <a href="http://www.wisebread.com/11-surprising-things-your-hsa-will-cover">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/going-without-health-insurance-in-2015-heres-what-itll-cost-you">Going Without Health Insurance in 2015? Here&#039;s What It&#039;ll Cost You</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-you-can-save-money-on-prescription-medications">7 Ways You Can Save Money On Prescription Medications</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/health-insurance-how-to-fight-back-against-4-common-claim-denials">Health Insurance: How to Fight Back Against 4 Common Claim Denials</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-ways-to-spend-your-last-minute-health-care-fsa-funds">8 Ways to Spend Your Last-Minute Health Care FSA Funds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/signing-up-for-obamacare-in-2015-heres-whats-new">Signing Up for Obamacare in 2015? Here&#039;s What&#039;s New</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Health and Beauty Insurance health care health insurance health savings account HSA IRS medicine prescriptions Thu, 10 Nov 2016 09:30:13 +0000 Samantha Stauf 1828889 at http://www.wisebread.com