filing

The 7 Most Common Tax Questions for Beginners, Answered

Carrie Kirby — Fri, 17 Feb 2017 10:00:18 +0000

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.

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.

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 Internal Revenue Service, ask a professional. (See also: 6 Great Places to Get Free Tax Advice)

1. Do I Have to File a Tax Return?

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 other criteria 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.)

2. Do I Need to Hire an Accountant to File?

No. If your tax situation is simple — for instance, if all your income comes from your full-time job and your earnings are modest — your filing process should be straightforward. Of course, hiring an accountant could save you time. The IRS estimates that the "short form," 1040A, takes about 10 hours to file.

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&R Block, and TaxAct all offer free versions for simple returns. If your taxes are a bit more complicated — for instance, if you want to search for possible deductions — you can get both state and federal taxes filed through these sites for between $40 and $100. (See also: 8 Ways to File Your Taxes for Free)

3. Where Do I Find Tax Forms?

If you file online, you don't need to locate forms — 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 IRS website or pick them up, along with instruction booklets, at a public library or post office.

4. What Money Do I Have to Pay Taxes On?

You have to pay taxes on almost any money you make, whether it's from working, selling something, or even finding buried treasure. That said, there are plenty of exceptions, such as most gifts, compensation for injuries, proceeds from selling your home (within limits), and investment gains inside certain retirement accounts (you'll pay taxes on the gains inside your IRA eventually, but not now).

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.

5. Will I Get a Refund?

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.

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.

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 higher tax bracket, causing you to owe more.

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.

6. What's the Difference Between a Deduction, an Exemption, and a Credit?

All three are ways the tax code allows you to reduce the tax you owe.

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.

We get tax deductions for charitable donations we make, mortgage interest, 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).

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.

One of the most important tax credits to know about is the earned income tax credit, 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 "refund."

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 — 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.

7. What If I File Late?

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 file for an extension 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 — so don't delay.

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 "back tax return" now. If less than three years have gone by, you can even claim refunds for past years.

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Get Your Money Sooner by Starting 2016 Tax Prep Now

Damian Davila — Wed, 30 Nov 2016 11:00:07 +0000

Good news, U.S. taxpayers!

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.

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.

1. Avoid Withholding More Than You Need To

Nearly eight out of 10 U.S. tax filers get tax refunds. This isn't good for two reasons. First, those individuals have to get throughout the year with fewer dollars. The average refund for the 2016 tax season 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.

To find out whether or not you have already withheld enough for this tax season, use the IRS Withholding Calculator 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.

2. Spread Out Tax Liability

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:

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;
Input an additional amount, if any, you want withheld from each paycheck on line six of Form W-4; or
Submit an additional estimated tax payment with the fourth voucher from Form 1040-ES due on January 17, 2017.

3. Boost Retirement Account Contributions

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.

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.

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: 6 Smart Things to Do With Your Bonus)

4. Get Your Refund Faster

The IRS issues tax refunds generally in less than 21 calendar days. 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 — 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).

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 approximately 10 to 14 weeks.

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: 8 Tax Return Mistakes Even Smart People Make)

5. Prevent Tax Identity Theft

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 31,578 fraudulent tax returns involving identity theft. Just six days later, the number of identified fraudulent tax returns increased by over 10,500!

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.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Old School Tools to Help You Stay on Budget

Max Wong — Mon, 28 Mar 2016 10:01:03 +0000

Because I am a visual thinker, low-fi tools like datebooks and check registers help me keep my finances better organized than when I use digital tools like Quicken and Excel. Surprisingly, these olde time-y office supplies also keep me from overspending.

1. A Receipt Spindle

I actually hate bookkeeping. As a result, my desktop used to be a mess of receipts at the end of every month — until I started using a cheap spindle to organize my paper receipts. Every night I pull the receipts out of my tiny wallet and stick them onto the prong. At the end of the month, I pull the receipts off as one stack, flip the stack, and voila — receipts in chronological order ready to be reconciled with Mint.com. After double checking the receipts against my bank records, I then put the receipts into an accordion file in the odd event I need hard, tangible evidence at tax time. While my system might sound fiddly, it actually takes less than 20 minutes a month to manage my receipts this way.

2. Paper Checks

No pain, no gain. There have been, conservatively, 55,321 studies in the last two decades that show that people are willing to spend up to twice as much for the same item when they pay with a credit card instead of cash.

Coupling is the psychological term for that negative feeling you get when you shell out cold hard cash for purchases. I double down on the discomfort by paying with checks. When I use a check, I am forced to write out the cost of a purchase, twice. The evidence of my consumption is right there in my own handwriting. While the moment it takes for me to pull out my checkbook and write a check might be annoying to anyone standing behind me in the checkout line, that moment gives me one last chance to think to myself, "Do I really need to spend money on this?" More often than not, that answer is no.

There are several other reasons why I refuse to kick my check writing habit:

When Digital Banking Technology Fails You, Paper Won't

My neighbor's debit card was just spoofed. Although her bank caught the theft within hours, she has to wait 10 days before her new ATM card arrives. She's currently living off the $200 the bank allowed her to draw down without her card. If she had checks, she wouldn't have to live off $20 a day.

Also, ATM machines and credit card machines require phone lines and electricity. During disasters like Hurricane Sandy, when the utilities go down, a paper check might be the only way to pay for emergency supplies.

Some Businesses Charge Extra Fees for Credit Cards

Many restaurants and small businesses charge an extra fee for credit card payments, or have a minimum amount for credit card purchases.

Utility Companies and Government Agencies Might Not Take Plastic

I thought I was going to just rack up the frequent flyer points by paying for all my utilities with my credit card. Alas, many of my utilities don't accept credit payments.

Use Checks to Create a Paper Trail

Not only do I use checks, I use duplicate checks. They make it easy to keep track of expenditures because they act like additional receipts.

3. A Spending Book

A spending book is a diet journal for your bank account. If you want to create a budget and save more money, you first have to know how you are spending all your filthy lucre. Most people don't blow through cash at the craps table in Las Vegas. Instead, they fritter away huge sums of money every year on super boring purchases and experiences. This is the reason why financial writers are constantly harping about why you shouldn't buy bottled water or to-go coffee. Those little impulse purchases are death by a thousand cuts to a budget.

A spending book helps save money in two ways. First, it gives you a detailed, down to the penny, view of your spending habits. Secondly, like writing a check, it makes parting with your earnings that much more painful.

4. A Record of Financial Triumphs

In addition to tracking my spending in the week-at-at-glance section of my Moleskine datebook, I use the month-at-a-glance section of my datebook to track my income. And by income, I mean the dime I picked up off the street, my garage sale earnings, and the money I made by selling old textbooks. All those teeny weenie income streams can add up to serious money over the course of one year. My husband didn't think we would be able to afford to fly East to visit friends and family over Christmas, but we handily paid for our 10-day vacation to NYC and Washington, D.C. with the money we'd earned from these little transactions.

5. The Envelope System

My grandmother taught me how to budget using the envelope system when I was a child and too young to open a savings account of my own. Yes, this budget hack is so simple, that even a nine-year-old can use it.

In brief, the envelope system uses cash to help visualize a budget and control spending. For example, three main spending categories for my household are groceries, records, and gas. Say my average monthly grocery budget is $200, my record budget is $100, and my gas budget is $200. To cover these three categories, I will withdraw $500 in cash from my paycheck and put the cash amount for each bill/budget category into their respectively named envelopes. This method prevents me from spending money out of pocket or my checking account because money has already been earmarked for every bill.

This type of budgeting is also called zero based budgeting because 100% of the spending money for each month is allocated to envelopes and zeroed out at the end of each month.

Personally, I like to have money left over in my envelopes each month. This little visual incentive is another reason why the envelope system helps me save money. I have tangible evidence of my good behavior!

6. A Portable Filing Cabinet

I think the main reason why old-fashioned bookkeeping tools have fallen out of favor is that many people have a hard time keeping track of paperwork. After years of trial and error, I finally found a solution that keeps my house free of loose papers.

I use eight plastic accordion files to keep track of my tax documents. One for this year's bills and paperwork, and one for each of the seven previous tax years. Although I have gone the "paperless" route with many of my bills, I still use this type of file to manage the hard copies of everything (real estate paperwork, recipes, knitting patterns) in my life.

I also like envelope closure accordion files because I am a klutz who is constantly dropping her paperwork. These files keep my records neatly separated by category, even if I accidentally put them into my bag upside down. These files are also great for people like me who live in small houses with no storage space.

What low-tech tricks do you use to manage your money? Share your skills with your fellow Wise Bread readers so we can all stay on budget when our Robot Overlords take control of the Matrix.

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This article is from Max Wong of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Choose the Best Tax Preparer

Mikey Rox — Mon, 21 Mar 2016 09:30:20 +0000

Everybody's favorite time of year — tax season — is here again! To make this year's lead-up at least a little less stressful, consider these tips on how to choose a competent preparer who will provide you peace of mind and perhaps even a decent refund.

1. Research Their Qualifications and Credentials

You have to begin somewhere in your search for a professional tax preparer who will help you file your returns accurately and efficiently — and that's by researching your candidate's qualifications and credentials.

For starters, says Steven V. Melnik, associate professor of tax law with the Department of Accountancy in the Zicklin School of Business at Baruch College, tax preparers must have an IRS-required Preparer Tax Identification Number (PTIN).

"Make sure your preparer includes their PTIN in the section labeled 'Paid Preparer Information' on your return," he advises. "Research the preparer's history to check for derogatory remarks, disciplinary actions, or any sanctions for fraudulent returns, and select someone who has prepared returns on a full-time basis for at least five years, has audit experience, and works with clients who are similar in needs."

As an additional step, you also should research your candidates' names on the IRS Directory of Federal Tax Return Preparers With Credentials and Select Qualifications, according to Georgia-based tax professional Yvette D. Best.

2. Ask for References

Because your tax preparer is handling your very sensitive and important financial information, it's essential to ask for references that can vouch for their work. Anybody can tell you they're the best in the biz, but it's wise to hear it from secondary sources so you're confident that you're choosing the right person for the job.

"A respectable tax preparer should provide you with referrals from past clients to confirm their reputation," Melnik says. "Ask those clients if their returns were audited as a result of any tax preparer errors."

3. Consider Your Circumstances

Not all tax returns are created equal, and as such you should choose a preparer who is adequately educated on how to properly file yours.

"If you're a W-2 employee who has only one income stream, for instance, it may not even be necessary to get outside help," says Jessie Seaman, a managing licensed tax professional at Tax Defense Network. "Online tax software has become intuitive and simple to use, so you may find this a preferable option. Alternatively, if you're a contractor or run your own business, it's in your best interest to find a tax professional that you can rely on long term. This tax professional should have a history of helping clients who have circumstances similar to your own.”

John O. McManus, a top AV-rated estate-planning attorney and founding principal of McManus & Associates, adds that a tax preparer should have the knowledge and expertise to understand the complete picture of your finances. It's important that income tax planning be coordinated with retirement and financial planning efforts, as well as asset preservation strategies, if these components are relevant to your returns.

"Many people don't realize that they may be able to tap an estate planning attorney or other financial advisor for personal income tax return preparation, in order to bring together their income tax planning with their wealth management plan as a whole," McManus explains. "For example, income tax on the capital gains from the sale of an asset could be well over 30%, including federal, state, local impositions, and the Medicare surtax. For stock positions, business interests, real estate, and alternative investments that have appreciated significantly, top-notch income tax planning becomes critical.

While income tax planning focuses on your earnings, using an estate planning attorney or financial advisor for income tax preparation also helps you monitor the tax laws and the implications of potential changes, so you can address them in your overall financial planning."

4. Inquire About All Associated Fees Upfront

The last thing you want during an already stressful tax season — especially one where you may not receive a refund and instead owe money — is to be blindsided by fees on the backend of the preparation. To avoid this unwanted surprise, ask about all associated fees upfront. Most preparers offer services at a flat rate per return, Melnik says. As such, you want to avoid preparers who require a percentage of your refund as payment, since there's a chance they could inflate it to receive a larger fee — and that spells trouble all around.

5. Ensure That Electronic Filing Is Available

Electronic filing is the easy and quickest way to file your return (and get your refund) these days. But it's not just the convenience that makes e-filing attractive. It also helps separate the true tax professionals from the amateurs.

"The IRS requires that paid preparers who prepare more than 10 returns per year must file electronically, unless the client elects to file a paper return," according to Melnik.

Take a pass if your preparer doesn't offer electronic filing. It shows lack of experience and your return may be more susceptible to inaccuracies.

6. Choose a Preparer Who Is Accessible

Another important aspect of choosing the right tax preparer for you is having someone who's there when you need him or her. You never know what kind of issues will pop up before, during, and even after your taxes are filed, and you want someone on your side who will addresses whatever issues you have promptly.

Melnik advises, "Never retain a preparer who you are not able to contact when needed. Reputable tax preparers will try to respond to your inquiries within a stated reasonable time — such as within 24 hours or 48 hours. Sometimes you may need to contact your preparer after the tax-filing deadline. Your preparer should be available year round or have a qualified backup to handle an emergency."

Beware of Fraudulent Preparers

Not everyone is the best at their job — including tax "professionals" — and sometimes there are even bad apples in the mix. The tips above on how to choose a tax preparer wisely are critical in picking the right person for your situation, but just as important is being aware of the red flags that come with this territory and how to avoid them so you're not taken for a proverbial ride by a fraudulent preparer.

"First, be wary of anyone who contacts you about handling your taxes," Seaman says. "Also, if you call a potential preparer and learn that he or she will require a percentage of your tax return, as opposed to a flat fee, you don't want to use them. Further, if the person promises an inflated refund because of loopholes or vague tax tricks, you need to keep looking."

Additionally, Melnik details a few more common warning signs of a fraudulent preparer:

The preparer asks what amount of refund you would like to receive. A tax preparer cannot inform you of your refund prior to preparing the tax return. That's an indication that your tax preparer will prepare a fraudulent tax return.
He or she asks you to sign a blank return. Never sign a blank return under any circumstances. Do not sign a return without reviewing the return. Be sure to ask questions about any items that you find may be questionable.
You're asked to deposit your refund into their account. A reputable tax preparer will not require you to deposit your refund into their account absent a valid reason that should be disclosed to you, nor will they ask for a percentage of your refund. If you are asked to do this by your tax preparer, it is likely that you will be the victim of fraud.

Do you use a tax preparer? How did you choose?

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Important Tax Changes for 2016

Dan Rafter — Tue, 19 Jan 2016 12:00:03 +0000

What comes with a new year? Changes to the federal tax code, of course. And 2016 is no exception.

These changes could mean big financial penalties if you don't have health insurance. Or they could bring you big savings if you happen to own a small business. Overall, the changes to the tax code that Congress enacted last year are beneficial to consumers, according to Dave Du, vice president of consumer advocacy at TaxAudit.com.

"With just days to go before the end of the year, Congress finally extended most of the tax breaks which were set to expire," Du said. "Some of these provisions — like the definition of racehorse as property — won't impact too many of us, but there's much good news for taxpayers this year."

One example? You can file later this year. The deadline for filing your income taxes this year is April 18 instead of April 15, thanks to something called Emancipation Day in Washington, D.C.

Here are five other big tax changes you should be prepared for this year.

1. A Climbing Health Insurance Penalty

One of the bigger changes to the tax code this year is actually a punitive one: An increase in the penalty for not having health insurance that meets the requirements of the Affordable Care Act.

Micah Fraim, a Roanoke, Virginia-based Certified Public Accountant, said that for the 2015 tax year — those are the taxes you'll be filing by April 18 — filers will have to pay a penalty of $325 for every uninsured adult and $162.50 for every uninsured dependent child, or 2% of your taxable income — whichever number is greater.

That's a significant increase. For the 2014 tax year, those numbers stood at $95 and $47.50, or 1% of your taxable income. "And in 2016, it gets even worse," Friedman said.

For the 2016 tax year — the taxes you will file by April of 2017 — the penalty for not having insurance rises to $695 per adult and $347.50 per child, or 2.5% of your income. The message is clear: If you don't have acceptable health insurance, it's time to get it. (See also: Avoid These 5 Costly Health Insurance Mistakes)

2. New Health Insurance Forms

You can also expect to receive a new form or two in the mail relating to health insurance. If you've purchased health insurance through the federal government's Health Insurance Marketplace, you'll receive Form 1095-A. This isn't a change — the government began mailing this form out for the 2014 tax year.

But there are two new health insurance forms for the 2015 tax year. Form 1095-B is a statement from your health insurance company verifying that you and other members of your household have insurance coverage that meets the requirements of the Affordable Care Act. This form is only sent to taxpayers who get their insurance from somewhere other than the Health Insurance Marketplace, such as from their employer. Form 1095-C is a statement from your employer that provides details about your employer-sponsored health benefits.

Many taxpayers will receive both 1095-B and 1095-C, of course. The key fact to realize? You probably won't have to do anything with these forms, said Andrew Oswalt, Certified Public Account for Cedar Rapids, Iowa-based TaxACT.

"The new forms could be confusing because most people will think they have to do something with them," Oswalt said. "The reality is, they'll simply need to mark a checkbox on their Form 1040 when filing and keep the forms 1095-B and 1095-C for their records."

3. A Tax Break for Small Business Owners

Priyanka Prakash, finance specialist at loan-search service FitBiz Loans, said that small business owners need to be aware of Section 179 of the tax code — a new tax law that lets them deduct up to $500,000 of qualifying equipment on their tax returns.

To qualify for this deduction, the equipment must be used primarily for business purposes, Prakash said. The equipment must also have been put into use during the 2015 calendar year.

"This covers a wide range of equipment, from computers to furniture to business vehicles," Prakash said.

Prakash gives this example: If a business purchases office equipment worth $100,000, it can then deduct that entire purchase amount on its taxes. If the business has a tax rate of 30%, Section 179 will save it $30,000 in taxes. Previously, business owners could only deduct a small amount every year based on the life of the equipment.

"Section 179 saves small businesses a lot of money," Prakash said.

4. A Break for College Students

Tom Wheelwright, a Certified Public Account and author of Tax-Free Wealth, said that the 2015 tax year brought an important break for college students who are filing their own taxes or parents who claim these students as dependents.

Congress made permanent the American Opportunity Tax Credit, which gives college students a credit of $2,500 per year for college tuition, fees, and course materials. Parents can claim the exemption for their college-age students as long as they claim these students as dependents on their income taxes.

5. A Boon for Heads of Household

The standard deduction is set to rise — a bit — for heads of households. The standard deductions that most taxpayers can claim in 2016 haven't risen for single taxpayers or married couples filing jointly or separately. Blame that on low inflation.

But the standard deduction for taxpayers filing as the head of their households is going up a bit, rising $50 for 2016. That brings that standard deduction up to $9,300 in 2016.

Are you ready for tax time this year?

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Organize Your Paperwork in Just 10 Minutes a Week

Emily Guy Birken — Wed, 30 Dec 2015 14:00:03 +0000

I am an organization nerd. Not only does the thought of going to an office supply store make me giddy, but I have been known to spend a torrid Saturday night wantonly using my label maker on everything in the house.

Despite these tidy living bona fides, for years my organizational downfall was financial paperwork.

If you find yourself in a similar state of paperwork chaos, not to worry. You can tame the beast without having to sacrifice an entire week to the project. In fact, organizing your paperwork is a job you can handle in 10 minutes a week. Here’s how:

1. Know What You Need

The first problem with financial paperwork is the fact that it can be difficult to remember how much of it you need to keep. The specter of an IRS audit is enough to turn anyone into a paperwork hoarder, but keeping everything isn’t helpful if you don’t know how to find what you need.

Before you get started, you need to know what to keep and what to toss.

The One-Year Rule

Most of your day-to-day financial paperwork, such as paycheck stubs, paid bills, bank records, and quarterly investment statements only need to hang around for a year at most. Once you’ve received your W2 and annual statement, you can shred paycheck stubs and quarterly investment statements after making sure everything is accurate. Unless your bills and bank records are needed for tax purposes, they can also be shredded after one year.

The Three-Year Rule

You have probably heard that you need to keep all tax-related paperwork for seven years, but that is actually a longer period of time than what the IRS expects of the average taxpayer. While you are stuck holding onto your annual tax returns indefinitely, the IRS doesn’t expect you keep supporting documentation (like mutual fund reports or charitable gift receipts) for more than three years. What’s special about the three-year mark? That’s the number of years Uncle Sam has to initiate an audit for regular tax returns.

Once you’ve passed three years, you can shred the records, with a couple of exceptions: First, keep documentation showing the initial purchase price of any stocks or mutual funds you own, because you will need to determine your gains or losses when it comes time to sell. And second, hold onto house records for as long as you live there (or own the place).

The Seven-Year Rule

The IRS can initiate an audit within seven years for any taxpayers who filed a claim for a loss from worthless securities or a bad debt deduction. Taxpayers who don’t include up to 25% of their reportable gross income (think servers or other employees who rely on cash tips) should hold onto their records for six years in case of an audit.

2. Start Sorting With Three Folders

Once you understand what can be kept and what can be chucked, it’s time to start organizing. The key to 10-minute organizing is the Quick Sort Method, created by Kimberlee Stokes of The Peaceful Mom. You will need three empty manila folders, labeled NOW, 10 MINUTES A WEEK, and FILE. In addition, you want to warm up your shredder for all the items that don’t go in any of these folders.

Once you have the system in place, you can leave your three folders in a standing rack right by the trashcan or shredder and sort items the moment they come in the mail.

The NOW Folder

This is where you will put any items that need immediate attention, such as bills to pay, insurance paperwork, license renewals, and the like. When you finish sorting all of your paperwork during this first sort-and-purge stint, you will go through the NOW folder and take care of everything. This will likely take you longer than 10 minutes the first time, but it will set you up to make organizing your paperwork and paying your bills much simpler down the road.

As you complete each item in the NOW folder, you can move that paper either to the FILE folder for future filing, or to the shredder. Once you have your system in place, you can put items directly in the NOW folder as you receive them, and take a minute or two each day to empty the folder.

The 10 MINUTES A WEEK Folder

This folder will house all of the items that require some sort of action on your part but don’t need immediate attention. For instance, you might put subscription renewals, paperwork that requires input from other family members, items that have no specific deadline, and the like.

Once you have taken care of the NOW items, the items in this folder will be the work that you do each week to stay on top of your paperwork and maintain your organized files.

The FILE Folder

Items that you need to file for the future will go into this folder. When you start using this system, the FILE folder will get pretty full, but eventually, you’ll find that there is nothing left in the first two folders You will spend your 10 minutes each week filing from this folder.

As for the filing, generally you will only need two systems: one for tax documents and one for general financial documents. These two systems do not need to be complex to be useful. Here is how to organize them both:

3. Organizing Tax Documents With Three Folders

Most taxpayers can easily organize their tax documents with three folders. You’ll need one each for income, expenses and deductions, and investments.

Folder for Income

If you work a single traditional job and receive electronic paystubs, you may not even need an income folder. But this is essential for those with irregular income, freelancers, contractors, people holding multiple jobs, and anyone who receives income from investments. Having this folder in place will help you keep track of every single penny you earn.

Not only should you deposit all paycheck stubs into this folder, but Dayana Yochim of The Motley Fool also recommends recording your earned income on a cover sheet in the folder, as well. This will give you method for checking the accuracy of official documents as they arrive.

Folder for Expenses and Deductions

If you’re like most people, you probably throw your receipts, statements, and paid bills into a shoebox to sort through come tax time. It’s much easier on your sanity to create an Expenses and Deductions folder with separate sections so you can be more organized throughout the year.

For instance, this folder might include sections for business, charitable donations, childcare, and medical expenses. Separating out all of your receipts for expenses and deductions will save you from those horrible moments when you cannot recall why you held onto a particular receipt.

It’s also a good idea to file a list of common tax deductions in this folder so you can easily remember what you may claim what documents you need to save.

Folder for Investments

Your Investments folder is where you will store the following paperwork:

Records proving your tax-deductible contributions to retirement accounts.
Notices of dividends, and capital gains and losses.
Distribution records you receive when you take money from investment accounts.
Annual statements.

Generally, the IRS will not need all of this paperwork for next year’s taxes, but you need this information on hand for future tax returns. For instance, if you sell an investment, you will need to be able to provide paperwork about that investment, and having it filed by year for future reference will make your life much easier.

Organize Tax Information by Year

Once you have filed your taxes each year, it’s a good idea to then create a file folder labeled with the year, where you place everything from your three tax folders. Each year, you can also go through your four-year-old (or eight-year-old) tax file folder and purge the documents that you no longer need. Remember, you should keep the actual return for each year — it’s only the supporting documents that can be shredded after the end of either three or seven years.

4. Organize General Financial Documents Alphabetically

For all of your general financial documents, the easiest filing system is the one recommended by David Allen in Getting Things Done — file your paperwork alphabetically in hanging folders. It is much easier to find the specific paperwork you need if you know to look for a cable bill under C for Comcast, rather than trying to root through a huge folder labeled Utilities.

5. Maintaining Your Paperwork Organization

Organization is a process, not an event. Creating these folders will not actually help you end the paperwork pile-up if you can’t maintain it. Here are two ways to make sure you keep up with your 10 minutes per week:

1. Put Documents Where You Naturally Store Them

We all have a tendency to let our paperwork pile up in a particular spot in our home, such as the kitchen counter or the coffee table. One of the problems with attempting to get organized is that we often try to rehome our paperwork in a “better” place than where things naturally gather, and so we spend an afternoon creating a paperwork station in the spare bedroom.

But you’re not going to schlep the mail upstairs every day after work, so don’t expect a filing system to be sustainable up there. Create a system in the place where you naturally gravitate, because it is easier to maintain a habit that is based on the way you already use your space.

2. Schedule 10 Minutes of Organization Per Week

Organizing financial paperwork is an important but not urgent task, so you can easily fall into the “I’ll just do it later” trap. The trick to keeping up with your organization is to schedule it the same way you would a meeting or conference call.

Unless you schedule a specific time and protect it from other commitments, you’re likely to lose momentum. Figure out when your 10 minutes will be spent, write it on your calendar, and keep the appointment with yourself. You’ll be glad you did.

How do you keep your important documents organized?

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Top Three Tax Facts to Know for 2016

Damian Davila — Thu, 25 Jun 2015 13:00:12 +0000

2015 is a rough year for taxpayers.

This is the first year the IRS administers the premium tax credits and individual mandates under the Affordable Care Act.
The number of IRS employees assigned to phones dropped by 26%, and those employees answer fewer than 40% of calls.
Lucky callers that get to talk to somebody at the IRS only do so after waiting up to 70% longer than five years ago, and can only get answers to the most basic tax questions.
Nina Olson, taxpayer advocate at the IRS, summarized this tax season as a "devastating erosion of taxpayer service" and a "sad state of affairs."

Once this year's tax season is in the books, it's time to get ready for the one next year. To help you determine what's in store, here are three tax facts to know for 2016.

1. More Time to File

About one third of Americans wait until the last minute to file their federal taxes.

Those procrastinating tax filers (not you, of course!) will be happy to find that most of them are going to get four extra days to file federal taxes in 2015. There are three reasons for this extension.

2016 is a leap year, so February 29th provides a much needed extra day.
The 154th anniversary of Emancipation Day, when former President Lincoln signed the Compensated Emancipation Act, falls on April 15th in 2016. Made an official public holiday under Section 7503 of the Tax Code in 2005, Emancipation Day pushes the tax deadline to the next business day.
Since Tax Day and Emancipation Day will be observed on Friday April 15, 2016, the next business day will be Monday April 18, 2016.

Wohoo! Most taxpayers will have until Monday April 18, 2016 to file federal taxes (four extra days).

You may be wondering why I keep saying that "most taxpayers" get four extra days. The reason is that some taxpayers will get five extra days.

Residents of Maine and Massachusetts will celebrate Patriot's Day (a state holiday commemorating the anniversary of the Battles of Lexington and Concord, the first battles of the American Revolutionary War) on Monday April 18, 2016. The aforementioned Section 7503 of the Tax Code includes in its definition of "legal holiday" any statewide legal holiday in the state where such office is located.

So, residents of Maine and Massachusetts have until the closing hours of the postal office on Tuesday April 19, 2016 (five extra days!) to drop their federal tax forms in the mail.

Need even more time than that? Then make sure to file an extension by the deadline.

2. Over 100,000 Compromised Tax Records

Even when you cross the t's and dot the i's in your federal tax forms, something may still go wrong.

In May 2015, the IRS announced that "...criminals used taxpayer-specific data acquired from non-IRS sources to gain unauthorized access to information on approximately 100,000 tax accounts." Identity thieves got away with Social Security numbers, dates of birth, and street addresses through the IRS Get Transcript online service, which is currently unavailable.

Those 100,000 taxpayers affected by the data breach will receive a letter from the IRS officially notifying them of the event and providing recommendations for next steps, such as credit monitoring.

However, there's more to this breach.

An estimated additional 100,000 taxpayers will also receive IRS letters in the event that the criminals tried, but were unsuccessful, to gain access to taxpayer data through the Get Transcript application.
About 13,000 suspect returns were filed for tax year 2014 and their refunds were already sent out.

If you were a victim of identify theft, you may have already received (or will receive) an IRS letter in the near future. This would surely throw a monkey wrench into your 2016 tax filing.

3. Late State Tax Refunds

This 2015 the state tax man cometh late.

In response to the increasing number of tax fraud cases around the country, more than one state Department of Taxation is delaying refunds. For example, the Hawaii State Department of Taxation initially told taxpayers it would take six to eight weeks to process submitted tax forms.

By April 2015, new procedures to prevent tax fraud increased the wait period to approximately 10 to 14 weeks.
The Hawaii Department of Taxation updated the processing time to up to 16 weeks on May 6, 2015. Further delays are expected since refunds issued after July 20, 2015 will start receiving interest.
Hawaii taxpayers that file their state taxes online usually get a faster refund. This won't be the case for 2015.

But Hawaii taxpayers aren't the only ones on this boat.

The state Department of Taxation of Colorado has noticed a spike in fraudulent forms, so they had to suspend refunds for 10 days. As a result, many refunds may be still be delayed.
The State of Alabama Department of Revenue saw a rise in the filings of fraudulent state income tax returns using online software services, so they had to implement a Taxpayer ID Confirmation Quiz. Some Alabamians are required to take this quiz and, if the fail to complete it, they won't have their refund processed.
The Louisiana Department of Revenue didn't start issuing state income refunds until the last week of February due to an increase in tax fraud.

Waiting on your refund, if any, may put a hold on your finances, particularly when you're counting on that refund to make a down payment, pay a big bill, or reduce debt. This is why you need to figure out the appropriate withholding rate (not too big, not too small) so that you don't end up owing the taxman a big check. (See also: 8 Tax Return Mistakes Even Smart People Make)

More days to file federal taxes, letters from the IRS warning some taxpayers about identity theft and tax fraud, and delayed state tax refunds are sure to make 2016 an interesting year.

What is your forecast for 2016's tax season? Please share in the comments below or tweet us at @Wisebread.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Simple Ways to Save Money by Tracking Your Receipts

Carrie Smith — Fri, 19 Jun 2015 11:00:20 +0000

Receipts are often annoying little pieces of paper that we disregard or forget about — that is, until we need to exchange an item or file expenses. Although it might take a little effort, keeping track of your receipts can help you better manage your financial life and save money. Here's how.

1. Missed Discounts

Did you know that some retailers will offer a retroactive discount in the event you forget to use a coupon when you originally purchase? It's true. Even if you forget to use a coupon at the store, you can walk back in and ask customer service to help you.

When I forgot to use a 20% off coupon for a purchase I made at Bed Bath & Beyond, I took the original receipt and coupon to the customer service desk and received a credit of the same 20% savings on a future purchase. Having this receipt handy saved me a good chunk of change.

2. Survey Savings

I've recently noticed that more and more restaurants and retail stores are asking customers to complete a survey in exchange for discounts or freebies. They need your feedback, and want to reward you in a small way for your help.

Old Navy, for example, will offer a 10% off coupon code when you complete a survey of your store shopping experience. It takes about three minutes to fill out the survey online and you'll be given a coupon code for 10% off your entire purchase the next time you're in the store.

Aside from saving money on clothes, I've received free burgers, drinks, cash, and other freebies for completing surveys that were printed on store receipts. It really does pay to keep your receipt and spend a few minutes answering the questions.

3. Catching Pricing Errors

We're all busy people, and this includes cashiers, which means it's highly probable that we're going to miss important savings. Whether it's us or the cashier who's in a hurry, a mistake could occur when checking out.

I always keep the receipt and thoroughly glance over it before leaving the store. Sometimes an employee will forget to scan a coupon I gave them, or they might ring up an item twice. Other times, it's helpful to verify the price that was scanned versus the price displayed on the shelf.

If a company has an item priced for $6, they have to sell it to you for that price, even if it's originally labeled for $20. So be sure to pay attention while checking out, or at the very least, review your receipt before leaving the store.

4. Tax Deductions

As a freelancer myself, it's vital that I keep record of all business-related expenses and purchases throughout the year. When you're a business owner, you already have to pay your own Social Security and Medicare tax (since you don't have an employer to help split the difference) which means you'll want to get all the deductions and credits you deserve.

Business trips and client meetings over coffee or lunch all count towards tax savings that can be deducted on your tax return at the end of the year. Even job hunting or moving expenses can help decrease your overall tax burden.

5. Rebates and Cash Back

This is likely one of the best reasons to keep a receipt, especially if it's for an electronic or gadget purchase. My husband recently upgraded his gaming computer and was able to get over $85 worth of cash rebates and gift cards because he followed the instructions for the rebate offers.

Companies are usually very strict about rebates and cashback policies, so be sure you're following the directions exactly. Often you'll have to mail in the original receipt, so you'll want to make a copy of it for yourself before sending it out.

Without the original receipt, most companies will not honor the rebate offer and you could be missing out on a good chunk of savings.

6. Mobile Apps to Store Receipts

We've established that keeping your receipts is important if you want to save more money, so how can you store them in an organized manner? The best answer is to use mobile apps to help stay organized and keep them for future reference.

Shoeboxed

Shoeboxed is a comprehensive mobile app that allows you to input your receipts manually, or take a picture of the receipt digitally. You can then store the information for tracking expenses, mileage or meal reimbursements, and easily export to bookkeeping software for expense reports.

Expensify

If you work in sales or are someone who travels a lot for business, Expensify is exactly what you need. Their SmartScan technology easily reads and scans your receipt, which you can then categorize, tag, and save for future reference. In the event you lose your original receipt, this app then generates and IRS-guaranteed eReceipt that's good for redemption purposes.

OneReceipt

With OneReceipt you can save both physical receipts and digital ones made from online purchases that are received in your email inbox. Either take an image of your paper receipt, or forward a digital receipt for categorization and saving using your personal "@onereceipt.com" email address.

Do you use your receipts to save money? What's another way to maximize your savings by keeping track of receipts?

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This article is from Carrie Smith of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Not So Fast! 5 Things You Must Do After Filing Taxes

Sarah Winfrey — Thu, 02 Apr 2015 09:00:10 +0000

Tax filing can be stressful, fraught with too many numbers and documents — but when you're finally done, it feels like such a relief. Whether you file online or mail in your return all old school, getting done usually feels like a huge weight off your shoulders.

But wait! Before you relax too much, chuck all your papers into the trash, and move on with your life, there are a few things you should keep in mind. Here's what to do after you file your taxes.

1. Keep Your Records

At the very least, keep your records easily accessible and on-hand until you receive your tax refund or until you get notice that your payment has been processed (be sure to verify this with your bank!). That way, you have everything in front of you in case you need to file again (or chase down answers about what happened with your taxes).

Otherwise, you should keep copies of your old tax returns indefinitely. It used to be common practice to get rid of these after seven to 10 years. Now that you can store them electronically, though, there's no reason not to keep them longer. Remember that the IRS can audit you for years afterward, so it's important to be prepared.

As for other tax-related paperwork, how long you keep your documentation depends on your particular tax situation. Find your particular situation on this tax checklist and store your documents accordingly.

2. Check the Status of Your Filing

If you file electronically, you can check the status of your taxes as soon as 24 hours after you file (if you mail in your return, it will take up to four weeks for your data to show up in the system). Use the IRS's simple online form, or download their IRS2Go app to check. You'll need your social security number, your filing status, and the exact amount of your refund to login.

Checking on your filing won't just aide your peace of mind, but it'll also help you avoid any potential problems before they arise. If your return doesn't show up in the system, for example, you can handle that before your filing is considered late. If you have any doubts, get in touch with your local IRS office.

3. Make Your Payments

If you owe taxes, make sure that you've paid them, and not just filed your return. Most of the time, you can pay when you e-file, or send a check when you mail in your return. If you don't do either of those, though, you can pay through the IRS payments site. Send an electronic check directly from your account, or use a credit or debit card. Pay by check or money order with their instructions.

The most important thing is that you pay whatever you owe. It isn't only essential that you file your return, but that the government gets any money that is theirs by the April 15 deadline.

4. ...Or File for a Payment Plan

If you discover that you owe more money than you expected, or if you just don't have the cash on hand, you can request a payment plan. There's an online payment agreement application, and as long as you meet their requirements, they're fairly easy to get.

It goes without saying that if you have a payment plan, you need to stick to it. Failing to pay owed money to the IRS comes with consequences.

5. If You're Struggling, File an Extension

Technically, this isn't something you do after you file your taxes. But if you're really having difficulty finishing your taxes in a timely fashion, file an extension. These are granted automatically, as long as you fill out your paperwork properly.

A tax extension will give you an extra six months to file your taxes, so your return will be due October 15 instead of April 15. Make sure you file it before the original due date and that you figure out whatever you need before your final deadline.

If you've got all these ducks in a row, take a break. Relax. Breathe. Do something fun. You definitely deserve it.

What do you do after you file your taxes? And how will you celebrate being done with them?

This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why You Should Always "Get It in Writing"

Thursday Bram — Fri, 14 Jun 2013 09:48:32 +0000

At some point in your life, someone is going to do something that adversely impacts you, whether your employer skips you over for a promotion or your landlord tries to keep your entire security deposit. You're going to have to fight back and prove that you're in the right. And to do that, you're going to need evidence. (See also: Organizing Your Financial Paperwork)

The average organization (or individual) doesn't set out to make your life hard. They just work from the assumption that they must be right, at least until shown otherwise. That means that you need documentation of the circumstances in order to win fights. And, since it's tough to tell when someone is going to do something wrong in advance, it's a good idea to build a habit of keeping good documentation.

Get It in Writing

I can't count the number of times that someone has promised me one thing on the phone and forgotten all about it the moment he's hung up. Unless you have a recording of the phone call (which can actually get you into legal trouble!), it's a matter of "he said, she said." The only alternative is to get any decisions in writing, especially if they're out of the ordinary.

It's easy to ask the person you talked to for an email laying out the terms you just discussed. Actually getting that email can be a different matter. Turning the tables can speed up the process; you can write up the terms you discussed and send it to your contact, asking for confirmation that you wrote everything up correctly. Even a quick reply saying that it's exactly what you discussed will help you win your fights down the road. And your email is easier to search than voice mails and other recordings.

Store and Organize Your Documents

Most of us have employment contracts, utility bills, and stacks of other papers all over the place. A haphazard organization system is no help in winning a dispute because you may not even be able to find your documentation. One of the best options is to digitize everything, particularly with text recognition software, so you can easily search for any document you need. (I use Evernote and a scanner.)

Build a habit of scanning every piece of paperwork you need and saving it to the same place. You'll want a back up of your files and you may also need to keep your physical copies — but those won't need to be so thoroughly filed.

Double Check Your Terms

We all forget the details after a while. If something feels a little off and you think you may have to gear up for a dispute, check your documentation before you draw your line in the sand. You may need to round up a few more papers before going up against the bureaucracy. Or you may want to renegotiate those terms. Either way, you'll need the documents in order to get what you want.

Have you ever been forced to defend yourself with documents? Please share your experience in comments!

This article is from Thursday Bram of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Best Money Tips: Tax Tips to Help You Get Started

Ashley Jacobs — Thu, 14 Feb 2013 11:00:32 +0000

Welcome to Wise Bread's Best Money Tips Roundup! Today we found some great articles on tax tips to help you get started this filing season, what to do before you lose your wallet, and working from home with young children.

To Shred or Not to Shred: How Long to Keep Your Tax Records

Jeff Rose — Wed, 27 Jul 2011 10:24:05 +0000

Maybe you've heard of that seven-year rule? It says that you should keep all your receipts and records for at least seven years. That's not true in all cases, but knowing what you should keep, and how long you should keep it, can be confusing and complicated. According to the IRS website, there are no hard and fast rules on how long you should hang onto documents. Nor are there rules for how you should keep them (paper copies, online, or scanned and stored to a hard drive). You will just need to have access to them if you should ever get audited or need them for other purposes. (See also: 6 Quick Tips for Organizing Your Finances)

The Tax-Review Period

The basic period for IRS tax review is three years. Yes, that means that even if you filed your taxes this year, got your refund or paid your taxes due, the IRS can audit you for up to three years. If it is suspected that you filed a fraudulent claim, or you owe more taxes, there is a chance you could be asked to show some documentation. So a good rule of thumb is to keep everything related to your taxes for at least three years.

Special Circumstances

Outside of the three-year tax review window, there are other reasons that you could be audited or asked to show your tax documents. The length of time the IRS has to ask for these documents varies. Here are some examples:

If you goofed on reporting your income by more then 25%, the IRS can audit you and ask to see proof of income for up to six years. So it's a good idea to hang onto your tax-related documents if you think you may have under-reported your income in any way.
If you didn't file a return but should have, you need to keep your tax records indefinitely.
If you amended your tax return to get an additional refund, you should keep your tax records for three years from the date of your amended return.
If you filed a fraudulent return, there is no limit on how long you should hang onto your tax records.
If you claimed a loss from a worthless security, then you need to hold onto those records for seven years.

Other Reasons to Keep Records

Even if you don't need some of your records for IRS purposes anymore, you may want to consider if you need them for another reason before tossing them. For instance, you may need documents related to your home for insurance purposes. If you own an item or piece of property, it's a good idea to hang onto any documentation related to those items. You could find yourself needing them for a warranty or return.

It's also a good idea to hang onto your past income tax returns. There are so many programs that require proof of income, such as food stamps and medical aid assistance, and usually furnishing a past tax return is all the proof you need. It's also helpful in having past tax returns to prepare future returns.

When we decided to build our first home a few years back, our bank was a stickler about having proof of income — primarily because I had recently transitioned to the realm of the self-employed. I had to provide both proof of income as well as a recently filed tax return.

In any case, it's a good idea to hang onto all tax records for at least the three-year period that you could be audited.

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This article is from Jeff Rose of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Quick Tips for Organizing Your Finances

Craig Ford — Wed, 16 Feb 2011 13:36:14 +0000

Do you ever find it hard to juggle your personal finances? I do. I keep having this awful feeling that I’ve forgotten to pay a bill or something. Those thoughts are a clear reminder that I need to do a better job organizing my finances. (See also: Financial IQ Test: How Healthy Is Your Budget?)

In case there are others in need of financial organization, I’ve included these tips.

1. Reduce Your Total Number of Financial Accounts

Most people could only dream about a situation where there they have one bank account, one credit card, and one brokerage. We’ve developed a complicated financial system where there’s a credit card for online, one for the gas station, and one for overseas. Then there’s the bank that gives high interest, the bank that gives cash back, and the bank that has minimal fees.

All this juggling and shuffling accounts gets too complicated. Get online and reduce your total number of accounts.

2. Amalgamate Financial Accounts into One Institution

Do you have a bank account at one place, a credit card through another company, and investments with a different brokerage?

Is there a bank or financial institution that will provide all those services in one convenient location? When you’re dealing with a single entity, the process of maintaining your finances is simplified.

3. Find an Effective Financial Tracking System

No matter how much you amalgamate and reduce your accounts, there is still the issue of tracking everything. Finding simple-but-effective personal finance software will allow you to easily track all of your accounts in one place. For over a year I’ve used Moneydance, and I’ve found it helpful to see an overview of my finances in one click.

4. Establish a Good Filing System

One of the biggest costs associated with financial disorganization comes in the form of missed payments. Just this week I found a bill on the fridge that was hiding under another piece of paper.

You can add a file for unpaid bills in your filing cabinet. However, if most of your bills are electronic, you can create a folder on your computer for unpaid bills.

One concern is that these bills might be buried, so you need to have a system for regularly checking both the physical and computer folders. You might consider setting up a computer reminder to be sure you are regularly checking the folders. So, for example, on the 10th and 20th of every month, you would open those folders and pay all those bills.

You could also consider setting up automatic payments, but there is also the danger that you might overdraw your account if you don’t properly monitor all your payments.

5. Keep a Regular Schedule

This one has been killing me lately. My wife and I used to sit down for 15-30 minutes once a week. At that time we would enter receipts into our budget, pay bills if necessary, and talk about any financial changes we need.

However, lately we’ve been out of that rut, and after a couple of weeks the pile gets so big, it’s intimidating.

Small, regular tasks are much easier that big jobs done infrequently.

6. Always Have a Notebook Handy

I have one in my car and one by my office desk. When I buy gas, I can record the information. When I think of a financial task that needs to be done, I can just jot it down to take care of at the next scheduled time to process payments.

If you’re looking for more tips, here are 28 tips for organizing your finances, how to organize your finances in four easy steps, and ten ways to organize and simplify your finances.

This article is from Craig Ford of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Best 4-Step Plan to Manage Your Medical Correspondence

Heather Johnson — Fri, 30 Oct 2009 13:00:03 +0000

If you've ever seen a doctor or been covered by health insurance, you'll relate to this. You sift through a pile of mail, and in it are two letters from your health insurer, a couple more from your doctor, one from your dentist, a packet from your employer's HR department, and something else from your Flexible Spending Administrator. If you have any kind of chronic illness or have recently switched insurance, the volume of this correspondence could be significant. How do you process the deluge of statements, notices, and bills for your healthcare? As with any good personal finance problem, there is a 4-step plan.

While many insurers are allowing members to opt out of hardcopy mail in favor of emailed statements and e-alerts, the same concepts still apply as they would with hardcopy mail. Each piece of information you receive needs to be processed. Processing them with these four steps could make the difference between overlooking important pieces of information due to disorganization or staying a step ahead of your medical providers and payers and getting your bills resolved correctly.

1. Is it relevant or is it junk?

As with other types of correspondence you receive, the first thing to determine is if what you received from your insurer, provider, or employer is junk or relevant. Many pieces of correspondence that are relevant to you and should not immediately be discarded. A good rule of thumb is that anything pertaining to a specific medical service (bill, statement, Explanation of Benefits (EOB)) is probably something you'll want to either review carefully or save for future reference. Other pieces — standard privacy disclosures, announcements about services, and other form mailers — can probably be quickly discarded after a quick once-over.

One word of caution: During your employer's open-enrollment season, be a little extra cautious about what you toss out. This is a time of year when it is worth doing an extra review of that seemingly low-value mail, as it could inform you of an important benefit or enrollment deadline. More than one person has had to spend hours correcting a benefits problem because the piece of paper they tossed out needed to be filled out and returned by a deadline.

Doing this first triage step alone should get rid of a third or more of the medical documentation you receive.

2. Does it pertain to an unresolved medical bill or recent service?

They key word here is "unresolved". Any documentation you receive related to a medical service that has yet to be settled, either by you or your insurance, should be saved in some sort of "active" file. It is likely that you will want to cross-reference an EOB from an insurer with the bill from the provider. In many cases, such as a Labor and Delivery, there might be multiple medical bills that you will need to compare with your EOBs to make sure everything ties together. If digging into an EOB is at all intimidating or confusing, you may find this guide on how to read an EOB helpful.

On the other hand, if the correspondence you receive simply refers to some past medical bill or service that you believe has been paid accurately, such as an EOB showing that your insurer paid in full, you can skip to step 4.

3. Do you need to call someone?

Occasionally, you will open a piece of correspondence that sets off a red flag: Your insurance has denied an entire claim. Your doctor billed you $350 for a flu shot. Your provider says the entire bill is your responsibility because they have no insurance on file, even though you are fully covered. In these cases, pick up the phone and talk to whoever the information is from. HealthHarbor's guide to dealing with health insurance denials can help point you in the right direction on who to call and what to say if it is more than a simple issue.

In most cases, your healthcare provider's office and your insurer will both have customer service representatives who can help with the more basic issues. If it becomes complex, get ready for multiple calls or written correspondence, complete with whatever documentation you've filed away for that visit or service. Don't forget about the patient's secret weapon when it comes to insurance issues — your employer's benefits department. They carry much clout as the ultimate buyer of insurance policies.

4. File, shred, or submit to your FSA?

Once you've gone through the above three steps — you've determined if correspondence is even relevant, you know if it refers to an open or closed medical bill, and you are satisfied that you don't need to straighten out any problems, you can file or shred the documentation.

For any service that has yet to be fully resolved financially, keep the documentation in a folder exclusive to either open medical bills or that particular service, depending on your level of organization. If the service has been paid, you can either place the document in a longer-term file (if you are the filing type) or simply shred the document. We recommend shredding due to the sensitive nature of many medical documents. Before you do, however, make sure nothing on the bill — such as a copay — can be submitted to your Flexible Spending. If so, process it and wait for the reimbursement check to come or funds to show up in your bank account before shredding the documentation.

Keep in mind that most larger insurers now give you access to EOBs and other documents online, so filing paper isn't as important as it used to be.

In short, each step of this process should reduce the amount of paper you have floating around your desk. More importantly, it will separate the wheat from the chafe when it comes to healthcare documents. Knowing which one or two of those ten documents are really important, and which require action, will help you use your time well and get the most from your health insurance and medical providers.

Guest Post Blurb:

This is a guest post by Heather Johnson, Director with HealthHarbor.com.

Find more tips on HealthHarbor:

This article is from Heather Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Charitable giving - get a receipt

Andrea Karim — Thu, 28 Dec 2006 01:05:42 +0000

Here's hoping that I get this right — according to the IRS and NPR, new provisions are going into effect next year that will change the requirements for receiving a deduction on your taxes for charitable donations. The story that I heard on the radio referred most to donations to religious institutions, but it probably relates to other giving as well.

So, as far as I can deduce, you probably want to give your money in larger chunks, and get a receipt every time. In the past, the IRS was content with an honor system in which you merely reported your donations of under $250. Apparently they felt that writing this information down (on a day planner or journal or calendar) constituted proof that the donation was actually given — but they no longer do.

"To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. A bank record includes canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date. Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement, or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity."

The basic takeaway message is, when giving to charity, either pay with a check or credit card, or GET A RECEIPT. Don't let anyone make you feel cheap for asking for it, either. Like those bastards at the Goodwill Donation Center that I went to last week.

"Do you... sigh... want a RECEIPT?"

The answer (all together now): "Yes, I would. Thank you."

This article is from Andrea Karim of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: