TAXES What Are Tax Credits?

TAXES

What Are Tax Credits?

7 MINUTE READ

Remember that time you dug out the old jacket you hadn’t used in months from the closet and found a crumply $20 bill hiding inside one of the pockets? Makes you want to do a happy dance just thinking about it, right?

In the tax world, finding out if you qualify for a tax credit can feel a lot like finding that unexpected $20 bill—only much more valuable! Tax credits can magically shave hundreds, or even thousands, of dollars off your tax bill. Now that is worth busting a move or two!

Let’s take a closer look at what a tax credit is, how they work, and which ones you might be able to claim on your tax return this spring.

What Is a Tax Credit?

tax credit reduces how much you pay in taxes by letting you subtract a certain amount of money directly from your tax bill. A $500 tax credit, for example, will save you $500 in taxes owed. The more tax credits you claim, the more money you get to keep in your pocket!

What’s the point of having tax credits? The government sometimes uses taxes as a “stick” to try to discourage folks from certain behaviors or activities (think taxes on cigarettes). But Uncle Sam will also dangle a tax credit as a “carrot” to encourage certain behaviors and activities that might be beneficial for the economy, the environment or some other cause.

 

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Tax credits are also a way to provide a tax break for low- and middle-income taxpayers who need it most.

What’s the Difference Between a Tax Deduction and a Tax Credit?

While tax deductions and tax credits both lower how much you’ll pay in taxes, they do so in different ways. Deductions lower your taxable income while tax credits lower how much you actually owe in taxes dollar for dollar.

Deductions lower your taxable income while tax credits lower how much you actually owe in taxes dollar for dollar.

How does all that work? Well, if you’re in the 22% tax bracket, a $1,000 tax deduction will cut $220 off your tax bill. That’s pretty good! But a $1,000 tax credit will actually save you $1,000 in taxes for the year. So, between deductions and credits, it’s pretty clear to see that tax credits are the more valuable of the two!

Refundable vs. Nonrefundable Tax Credits: How Do Tax Credits Work?

While tax credits are great, not all tax credits are created equal. That’s because a tax credit can either be refundable or nonrefundable.

You still subtract both types of tax credits from what you owe in taxes, but there’s a big difference if the credit is greater than the amount you owe. With a refundable tax credit, the difference is paid to you as a refund! But with a nonrefundable credit, you won’t get a refund—the best you could hope for is to reduce your tax bill to zero.

A tax credit can either be refundable or nonrefundable.

For example, let’s say you owe $500 in taxes this year. If you’re eligible for a $750 nonrefundable tax credit, your tax bill goes down to zero, which is great, but you wouldn’t receive the extra $250 as a refund. The amount that’s left over is basically lost.

But what if that $750 tax credit was a refundable tax credit? In that case, you’d end up with no tax bill and you also get a $250 check back from the IRS. Nice!

Unfortunately, most tax credits are nonrefundable (boo!) but there are still some refundable tax credits you might qualify for!

What Tax Credits Are Available for Taxpayers?

There are dozens of tax credits available for all kinds of taxpayers, from parents and low-income workers to students and Americans living overseas. Chances are there’s one or two you might be able to claim on your tax return!

Here’s a rundown on some of the most common tax credits you might be able to claim this year.

Earned Income Tax Credit

This is the Big Kahuna of tax credits! The EITC is a refundable credit designed to help out low- and middle-income workers, especially those with children. Depending on your income, your filing status, and how many children you have, the credit could save you anywhere from $529 to $6,557 on your taxes.1

Workers earning up to $54,884 during the 2019 tax year might be eligible for the EITC.2 And while this is the most popular credit out there, the IRS estimates that one out of five taxpayers who are eligible either don’t claim the benefit on their taxes or don’t file a tax return at all.3 Don’t make that mistake!

Child Tax Credit

Kids are awesome. Kids are also expensive. But thanks to the 2018 tax reform billfamilies can claim up to $2,000 per qualified child with this tax credit (the income limits for this credit are $200,000 for single parents and $400,000 for married couples). And it’s a refundable credit, so if it’s worth more than what you owe in taxes, your family can receive up to $1,400 per child as a refund. Thanks, Junior!4

Education Credits

There are two major tax credits available for students. First, there’s the American Opportunity Credit. This credit is available only for students in their first four years of college and it’s worth up to $2,500 per student. Plus, it’s partially refundable, meaning you can receive up to $1,000 as a tax refund—even if you don’t owe anything in taxes!

If you’ve been in school longer than four years or you’re taking courses to advance your career, then the Lifetime Learning Credit is for you. Although this credit is nonrefundable, it can still cut your tax bill by up to $2,000.5 So stay in school, kids!

Retirement Savings Contributions Credit (Saver’s Credit)

This one’s for all you retirement savers out there! Also known as the Saver’s Credit, this nonrefundable credit helps low- and middle-income taxpayers who are saving for retirement. Depending on how much you make and what your tax filing status is, you can claim the credit for 50%, 20% or 10% of the first $2,000 you contribute to your retirement accounts, including 401(k)s and IRAs.

If you’re married filing jointly, your adjusted gross income has to be less than $64,000 in order to qualify for this credit (for singles, it’s $32,000 or less).6

Foreign Tax Credit

Just because you’re an American living overseas doesn’t mean you’re free from Uncle Sam’s grasp. But cheer up! To ease the pain of being taxed in two or more countries, the income taxes you’ve paid in another country can usually be claimed as a nonrefundable credit to lower your tax burden.7

Child and Dependent Care Credit

If you need to pay for child care so that you can go to work or if you’re caring for a spouse or parent who is unable to care for themselves, this credit can help you claim 20%—35% of up to $3,000 (or up to $6,000 of expenses for two or more dependents) of those costs.8

Elderly or Disabled Credit

Sometimes it pays to be a senior citizen. You get all kinds of discounts, free memberships and some pretty neat tax breaks! If you’re at least 65 years old or you’re retired with a permanent disability, you could knock $3,750—$7,500 off your tax bill with this nonrefundable tax credit.9

Get Your Taxes Done Right

Think you might qualify for one of these tax credits, but you’re not sure? You’re not alone! Unfortunately, millions of dollars in tax credits go unclaimed each year—that’s money that should be in your bank account instead of the government’s coffers!

If you need a tax advisor to help you with your taxes, our tax Endorsed Local Providers (ELPs) are here to serve you. These tax pros will take the time to get to know you and your tax situation so that you don’t miss out on any tax credits you qualify for.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES 4 Costly Strategies People Use to Avoid Paying Taxes

TAXES

4 Costly Strategies People Use to Avoid Paying Taxes

4 MINUTE READ

Can you really avoid paying taxes?

It’s a question that comes up at tax time every year. People want to pay less to the government and save as much money as they can. You can’t avoid the IRS, but you can take steps to protect your income.

Credits and deductions can reduce your tax bill if you’ve earned them. However, that doesn’t mean every tax-saving tactic is right for you. For instance, some people go so far as to invest money in something that saves taxes on the front end but costs them more in the long run.

That’s why it’s always a smart move to talk with a tax professional to ensure you understand how your investments impact your taxes.

Related: Not sure if your financial situation needs a tax pro’s guidance? Take this free quiz to find out!

Don’t Use These Strategies to Avoid Paying Taxes

We’re all about saving money on taxes. But not all tax-saving strategies are created equal. Let’s take a closer look at four common ways people try to avoid paying taxes—and why none of them are a good idea for tax savings alone.

1. Opening a Traditional IRA

Some people looking for a way to put themselves in a lower tax bracket will open a traditional IRA and write off whatever money they put in there. While saving money’s great, there is a problem with this strategy.

 

Don’t let taxes stress you out. A tax pro is the way to go!

Any money that goes into a traditional IRA is tax-deferred, which means you pay taxes on it when you take it out. At that point, your nest egg will most likely be much bigger. So you’re saving a little money on taxes now only to pay a lot more of it later. That’s not the best deal!

If you want to save for retirement, the first place you should put money is into a matching 401(k) plan. Even if it’s tax-deferred, you’re still getting free cash. If you have a Roth 401(k) option at work, go for it because it means your money will grow tax free. If not, invest up to your match, then open a Roth IRA so you don’t miss out on the opportunity to enjoy tax-free growth.

2. Buying an Annuity

Keeping with the investing theme, an annuity is simply a savings account with an insurance company. It can be tax-sheltered, but the problem is that you usually pay an extra fee to get that shelter. Sure, you save on taxes, but those savings cost you.

The only time it might be good to use a variable annuity is when you’ve maxed out all other retirement savings and your house is paid for, and most people aren’t there yet. Don’t open one just to save on tax day.

3. Saving Money in a Whole Life Insurance Policy

A salesman might pitch to you that the interest accumulated on the savings portion of a whole life or cash value policy does so free of taxes, so it’s good to save your money there. However, that “good” isn’t just bad—it’s ugly.

Here’s why whole life insurance policies are a bad investment:

  • Whole life insurance policies are notorious for bringing low rates of return. You could earn much more by investing in good growth stock mutual funds instead.
  • When you die, your family only receives the face value of your whole life insurance policy. All that money you saved inside the insurance plan? Gone.

Don’t choose a bad insurance product just to avoid taxes. Instead, invest in tax-favored retirement plans, like a Roth IRA or your workplace 401(k). You’ll still get tax breaks for your contributions—without the subpar rate of return.

4. Keeping the Mortgage Too Long

This one is a little more long-term, but it’s important to address. Don’t keep a mortgage just to save on taxes. The deduction you get for mortgage interest isn’t dollar-for-dollar, so you’ll pay more in interest than you save with Uncle Sam.

Let’s say you have a $200,000 mortgage at an interest rate of 5% and fall into the 25% tax bracket.

  • Keep the mortgage, and you’ll pay $10,000 a year in interest and save $2,500 in taxes.
  • Pay off the mortgage, and you’ll miss out on the $2,500 tax deduction but save $10,000 in interest.

Do you really think it’s smart to pay the bank $10,000 just so you can get a $2,500 tax break? We didn’t think so. Pay the mortgage off and be done with it!

Save Money With a Tax Professional You Can Trust

Dave’s tax Endorsed Local Providers (ELPs) are tax professionals who will take the time to explain your taxes and make sure you get every deduction you’re eligible to receive. Don’t wait until the tax crunch. Contact your tax pro today!

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES A Closer Look: Where Does Your Tax Money Go?

TAXES

A Closer Look: Where Does Your Tax Money Go?

10 MINUTE READ

Editor’s Note: For the most up-to-date information on tax policy and how it affects you, talk to a tax professional in your area and rock your tax preparation this year!

Hold on to your checkbooks! The 2012 tax year will be a record-setter. According to the Congressional Budget Office, tax revenues will reach $2.7 trillion—the most they have ever been. And, at $17 trillion, America’s debt will also be higher than ever before.

Many Americans side with Sen. Tom Coburn, R-Okla., who says America can thank bad politics for its financial trouble. “It’s the typical trick of the career politician,” he said. “I’ll give you something for nothing—it doesn’t work. Now, we’re at that time where the bill’s due.”

But taxes, debt and spending are tough issues for Americans. While most of us aren’t comfortable with our country’s debt levels and nearly everyone agrees that our government could handle our tax money better, we disagree about who should pay taxes and what taxes should pay for.

So we’ve decided to dive deep into these topics to discover exactly what Americans are paying for and why our nation’s spending seems to be spiraling out of control. Will the facts show that Sen. Coburn and millions of other citizens are mistaken, and that most Americans are actually getting what they want from their taxes?

 

Don’t let taxes stress you out. A tax pro is the way to go!

What Are We Paying For?

Over the past few months, millions of American taxpayers have dutifully filed their federal income taxes. For many families, these taxes are their largest annual expense. Regardless, most will simply fill out the paperwork and pay whatever figure ends up on the bottom line without asking too many questions.

So what are we really paying for? A sample 2011 tax receipt provided by whitehouse.gov shows the total tax bill for a married couple with two kids making $80,000 was just over $9,000. Here’s the breakdown:

  • Payroll taxes make up about half of the family’s tax bill and pay for Medicare ($1,160) and Social Security ($3,360).
  • About 70% of their income taxes go to three categories: national defense ($1,142), health care expenses like Medicaid ($1,087), and job and family security programs like unemployment insurance and food and housing assistance ($876).
  • The remainder is divided between 12 categories that include education, energy, agriculture and interest payments on the national debt.

On the spending side, federal budget outlays follow our sample tax receipt fairly closely. In 2011, the federal government spent $3.6 trillion: $2.2 trillion was financed by federal tax revenues; $83 billion came from Federal Reserve profits; and $1.3 trillion was borrowed money.

  • Health care expenses made up the largest portion of the budget at $769 billion. This was divided between Medicare, Medicaid and CHIP (Children’s Health Insurance Program) to provide health care to 60 million low-income children, parents, elderly and disabled Americans.
  • Social Security was the next largest expense at $731 billion, providing average monthly benefits of $1,230 to 35.6 million retired workers and 10.6 million disabled workers and their eligible dependents.
  • Defense and International Security Assistance expenses came in at $718 billion and include $159 billion for operations in Iraq and Afghanistan.
  • Safety net programs such as unemployment insurance and food and housing assistance totaled $466 billion.
  • Interest on the debt was only 6% of the budget at $230 billion.
  • The remaining $686 billion goes to programs such as veteran and federal retiree benefits, food and drug safety, education and transportation.

Who Is Paying For It?

If you want to stir up controversy, bring up the topic of who pays taxes and who doesn’t. Presidential candidate Mitt Romney arguably lost the 2012 election due to a remark he made about 47% of the country’s citizens not paying income taxes. What’s the truth behind the numbers?

Our income tax system is progressive, which means people with higher incomes do shoulder a larger portion of the taxes. According to Congressional Budget Office data, this year higher income families will have the highest average tax bills since 1979—the first year the office began tracking taxes.

  • Incomes in the top 20% will pay an average of 27.2% of their income in federal taxes, including income, payroll, corporate and estate taxes.
  • The top 1% will pay an average of 35.5% of their incomes in taxes.
  • The middle 20%, with incomes averaging $46,000, will pay an average of 13.8% of their incomes in taxes. That’s down from an average of about 16% over the last 30 years.
  • The bottom 20% of income earners won’t pay any federal taxes. Many will actually have a negative tax rate due to refundable credits and will actually receive payments from the federal government.

Related: Keep more of your hard-earned cash out of the hands of the government and in your own pocket. Work with a tax pro in your area who will help you do your taxes right!

Politics of Taxes

Republicans and Democrats, of course, view these findings differently. Democrats say wealthier people can afford to pay more because their incomes have grown more than middle- and low-income families’ have grown. Average after-tax incomes for the top 1% increased 155% between 1979 and 2009. Middle incomes increased 32% during the same period, while the lowest incomes grew 45%.

New tax laws passed by Congress January 1 and tax increases included in the Affordable Health Care Act will widen the tax gap for the 2013 tax year.

  • The top tax rate rises from 35% to 39.6% on individual incomes of more than $400,000 ($450,000 for married couples).
  • Lower tax rates are now permanent on incomes less than that amount.
  • Tax breaks for low-income families first enacted in President Obama’s 2009 stimulus package have been extended through 2017.

Republicans argue that raising taxes on higher incomes hurts long-term economic growth by reducing incentive to save and invest. In the 100-year history of the federal income tax, the top individual tax rate has been as high as 91% according to research compiled by the Heritage Foundation. But no matter how high or low income tax rates have been, the revenue produced by the income tax has remained steady, averaging 8% of gross domestic product, and never exceeding 10.2% of GDP.

Higher tax rates, Republicans point out, push taxpayers to find ways to shelter their income rather than use it to invest in the economy. “Recent increases in the top rate will do almost nothing to reduce deficits and debt,” Curtis Dubay said in his commentary published by the Heritage Foundation. “But it will cause considerable damage to the fragile economy.”

What Is Driving Spending?

The website usgovernmentspending.com compiles government spending and revenue data using Census Bureau reports, federal budgets and local government finance reports.

  • According to this data, total government spending as a percentage of GDP has increased 11.47% between 1972 and 2009.
  • In the same time period, spending on defense, infrastructure and government services has kept pace with GDP growth, even declining slightly as a share of GDP.
  • However, entitlement spending—which includes expenses for Medicare, Medicaid, CHIP, Social Security, welfare and social insurance programs—increased from a total of 6.02% of GDP in 1972 to nearly 20% of GDP in 2011.

Research released in the New York Times confirms that nearly all the growth in federal spending as a share of GDP has come from increased expenses in entitlement spending. According to the New York Times calculations, total government spending rose about 9% between 1972 and 2011, equal to $1.3 trillion per year in current dollars. In 1972, spending on entitlement programs was $500 billion. If it had increased at the same rate as GDP, it would now be $1.4 trillion. Instead, it is $2.9 trillion, $1.5 trillion above GDP growth.

In the report “Federal Spending by the Numbers” published by the Heritage Foundation, growth of the three main entitlement programs—Medicare, Medicaid and Social Security—combined with $1.7 trillion in new spending related to the Affordable Healthcare Act will force all other government programs like national defense, veterans programs, transportation, etc. to be paid for entirely with borrowed money by midcentury.

Here again, Republicans and Democrats differ in how to solve this problem. Democrats are generally in favor of preserving these benefits as they are, and are more likely to consider raising revenue through increased taxes. Republicans often propose spending cuts, including cuts to benefits, and oppose tax increases to fund additional spending.

Another Spending Issue—Waste

But, Sen. Coburn, however, says waste in the federal budget is the real problem. In 2011, Coburn presented his deficit reduction plan, Back in Black, which cut a total of $9 trillion from federal expenditures and would have balanced the budget in 10 years. The majority of his spending cuts focused on wasteful spending not only on entitlements, but throughout the federal budget.

“As long as we keep concentrating only on entitlement programs or fixed programs, you miss the third of the rest of the budget in the non-defense discretionary budget that’s wasted,” Sen. Coburn said.

Coburn believes we can get control of our spending, including entitlement spending, by examining and eliminating waste. “We can keep our promises (made through Social Security, Medicare and Medicaid),” he said. “What we can’t keep doing is telling people they’re fine when in fact, from a financial standpoint, they’re bankrupt.

“All the problems in front of us are solvable, but everybody’s going to be required to sacrifice­—the very wealthy and the not wealthy,” Coburn said. “We can’t borrow enough money to get us out of debt. We can’t tax our way out. The only way we can is to reform our way out of it. And the reform ought to be about growing the economy and growing prosperity and growing jobs by putting more capital into productive things rather than putting more capital into government.”

Are Taxpayers Getting What They Want?

Now that we’ve seen what we’re paying for and how much we’re paying for it—and how much more we’re not able to pay for, we’ve come down to the final question: Are taxpayers getting what they want? Do Americans believe it’s worth the expense to support government involvement in so many areas of our lives?

There is some research that suggests they do. A survey conducted by Head Research for TD Ameritrade shows that Americans’ top three priorities for government are affordable health care, job creation and improving public education. Investing in U.S. defense, a core government responsibility, came in eighth on the list.

Another study by American Progress says Americans tend to disagree with “big” government in principle, but at the same time, they embrace a wide range of federal government programs and initiatives. The survey also found:

  • 62% of survey respondents say their priority is to make government more efficient and effective over reducing the size of government.
  • Even the 27% of respondents who say the government should not do more to solve problems also say they want to see government improved rather than downsized in areas like energy development, education, reducing poverty and access to affordable healthcare.

“There’s a hole in that philosophy that everyone knows, but no one will admit,” Sen. Coburn said in response to these numbers. “It’s enticing to think that government can do things, but there’s not one program in the federal government that’s both highly effective and efficient.

“The more money the government spends, that means there’s less money in the private sector,” he continued. “Government can’t spend money and create wealth. Only the private sector can. So the bigger the government, the less the share of the GDP there is to produce wealth, which will promote increasing incomes for the private sector.”

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES The Truth About Taxes

TAXES

The Truth About Taxes

2 MINUTE READ

Myth: Getting a big refund on my income taxes is a good way to save money.

Truth: If you get a large tax refund, you’re allowing the IRS to take too much money out of your paycheck. You’re loaning the government your money; interest free. That’s money you could use to pay off debt and/or build wealth each month.

Related: Our tax pros can show you how to take home as much cash as possible with each paycheck and avoid overpaying the IRS. Connect with a tax pro today!

Getting a chunk of your money back at tax time is not the same as taking it home in your paycheck each month. According to the IRS, the average tax refund will be $2,800 in 2010. That’s about $230 per month you can’t use because you’re sending it to the government!

If you’re following the Baby Steps—Dave Ramsey’s plan to get you out of debt and building wealth—$230 will go a long way. In Baby Step 2, you pay off all debt (except the house) using the debt snowball. Imagine how much more quickly you could accomplish that by adding $230 each month to your payments. And, because you’d be paying down principal, you’d save on interest, too.

 

Don’t let taxes stress you out. A tax pro is the way to go!

Or, instead of giving your $230 a month to Uncle Sam, invest it in a Roth IRA earning a 12% rate of return. In 10 years, you’ll have $53,438. Got some extra time? After 32 years, your Roth IRA will be worth over $1 million—tax free!

Your goal is to pay nothing at tax time and not get a big check back from the government. To do that, do some figuring now to determine what your taxes will be for next year. Fill out a new W-4 to have the proper amount withheld from your paycheck. You can get an idea of your potential savings by using the withholding calculator at irs.gov.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES 15 Common Tax Deductions for Small-Business Owners

TAXES

15 Common Tax Deductions for Small-Business Owners

15 Common Tax Deductions for Small-Business Owners

9 MINUTE READ

We don’t have to convince you that taxes are complicated—especially for small-business owners. You know it. We know it.

And, quite frankly, you probably feel like you have much bigger fish to fry. You’re looking for ways to improve your product or service, what you can do to improve your customer experience, and how you can cut costs and increase revenue.

But not paying attention to your taxes could cost you big time—especially if you’re not sure which small-business tax deductions you’re eligible for. The last thing you want to do is miss out on deductions that could save you hundreds or thousands of dollars on your taxes or, worse, make some mistakes that leave you in hot water with the IRS.

But don’t worry! We can help you get a better grasp on what you can write off your tax return.

The “Ordinary and Necessary” Rule

Unfortunately, the IRS doesn’t have a master list of small-business tax deductions for each and every profession there is. Instead, they leave small-business owners with this general rule of thumb for what business expenses you can write off your taxes: If something is “ordinary and necessary” to running your business, then it’s a tax-deductible expense.

In other words, if you need certain items or services to survive as a business, you can write off those expenses on your tax return. So, if you’re an artist, you need paint and brushes and canvases to create your artwork. Those costs are tax-deductible. But getting a haircut? You’re going to have a hard time proving your new hairdo is essential to keeping your art business alive.

 

Business taxes can be confusing. Get the help you need.

While certain expenses are specific to what kind of business you run, here are some of the most common tax deductions available for most small-business owners:

1. Qualified Business Income

The 2018 tax reform law changed how deductions work for most taxpayers—including small-business owners. Under the new tax law, most small businesses (sole proprietorships, LLCs, S corporations and partnerships) will be able to deduct 20% of their income on their taxes. Woo-hoo!

Basically, if you own a small business and it generates $100,000 in profit in 2019, you can deduct $20,000 before ordinary income tax rates are applied.

Be warned: There are a few limits, however, that could prevent you from claiming this deduction. The biggest obstacle is the income limit that applies to some high-income business owners such as lawyers, doctors and consultants. Once your income exceeds $157,500 for single filers or $315,000 for pass-through business owners who file a joint return, this deduction begins to phase out.1

You’ll want to reach out to a tax pro to see if you’re eligible for this pass-through entity deduction.

2. Home Office

Have you turned a spare room in your house or apartment into a home office space? Good news! That means you’ll probably be able to deduct expenses for the business use of your home, which include mortgage interest, insurance, utilities, repairs and depreciation. The simplified version of this deduction allows small-business owners to deduct $5 for every square foot of your home office, up to a maximum of 300 square feet.2

But it’s important to remember the IRS only allows you to claim this deduction if your home office is used exclusively for business purposes on a regular basis. If your home office doubles as a guest room for your mom when she’s in town, that’s not going to fly.

3. Rent

With rent always going up, it’s nice to get a break somewhere. The cost of renting a space for your business is fully deductible, whether it’s a storefront on a busy downtown street for your cupcake shop or an office space in a business complex for your travel agency.

4. Advertising and Marketing

If you’ve been handing out more business cards to potential clients than candy to trick-or-treaters on Halloween, you’re in luck! You’ll be able to deduct the cost of printing those business cards on your tax return. Basically, anything you use to promote your business and bring in new customers (from social media ads to billboards) is 100% deductible. So, deduct away!

5. Office Supplies and Expenses

Okay, no matter what kind of business you run, you probably have a need to stock up on traditional office supplies—whether it’s printer ink, pens or Post-it Notes. Those traditional office supplies are fully deductible!

If you’ve bought a new laptop, smartphone or some software that you use for your small business during the year, you can write off the entire cost of those expenses, too.

6. Utilities

Uncle Sam knows you have to keep the lights on to keep your business going (and vice versa). Everything you spend on utility bills for your business—including electricity, phone, internet, water, heat and sewage—is fully deductible.

7. Repairs

Roofs leak, toilets break, and walls need to be repainted from time to time. If you need to repair parts of your business property or just perform regular maintenance to keep things running efficiently, you can write off those costs on your taxes too.

8. Car

A lot of small-business owners use vehicles in order to get stuff done—whether it’s driving to and from meetings with clients or using a pickup truck to transport heavy equipment from worksite to worksite. If you can prove that you use a vehicle for business purposes, you can deduct those expenses from your income.

Now, there are two ways you can claim this deduction:

  1. Use the standard mileage rate. Add up all the miles you drove for your business and multiply by the IRS’s standard deduction rate to figure out your deduction. As of 2019, the standard mileage rate is 58 cents per mile.3 So, for example, if you drive 5,000 miles for business purposes in 2019, you’ll be able to deduct $2,900 off your taxes.
  2. Add up your actual car-related expenses. Now, this option is going to take a little more work. If you keep very detailed records throughout the year, you can add up how much your car depreciated and how much you spent on gas, repairs, tires, tune-ups, car insurance and registration fees. That will be your deduction, instead of the mileage.

Which option you choose basically depends on how economical your car is, how much it cost you to drive it throughout the year, and how well you documented your car-related expenses. Better save those receipts!

9. Travel

Many small-business owners and their employees spend a lot of time in airports and traveling around the country to do business. But all those airline tickets and hotels can get pricey! If that’s you, the good news is that you can deduct most travel expenses from business trips for you and your employees if there is a business purpose behind the trip.4 Just make sure you hang onto all your receipts and keep detailed records from your travels. 

10. Meals

Wining and dining business clients can get pretty expensive, but at least you’ll be able to split the check with Uncle Sam. You can deduct 50% of the costs for business lunches, but not “entertainment expenses” like sporting events or a concert.

The costs of providing meals for your employees at a company picnic or a holiday party, however, are fully deductible!

11. Salaries and Employee Benefits

If you have employees, what you pay them—from salaries and wages to bonuses and commissions—are tax-deductible business expenses. You can also deduct contributions to their retirement plans, education assistance and most other employee benefit program costs. Do you have any freelancers or contract workers? What you pay them is tax deductible, too!

12. Taxes

Nothing feels better than deducting taxes on your taxes. While you can’t deduct federal income taxes, there are still plenty of other taxes closer to home you’ll be able to write off on your tax return. For example, you can write off up to $10,000 of state and local income taxes, sales taxes, real estate taxes and personal property taxes.

Here are a few other taxes you can also deduct:

  • Part of your self-employment tax
  • Franchise taxes
  • Excise taxes
  • Occupational taxes

13. Insurance

No matter what kind of business you’re in, you definitely want to protect it. And the best way to do that is to get the right kinds of insurance in place. The cost for many of the insurance premiums you’ll need for your business—like liability insurance, fire and flood insurance or a business owner’s policy—are deductible. Medical insurance for your employees is also deductible under certain circumstances as well.

14. Legal and Professional Fees

You have the right to an attorney—and the right to deduct any legal and accounting fees charged by attorneys and accountants that are related to your business operations.

15. Debt Interest

Listen, we believe the best way to run your business is to run it completely debt-free. Debt is not a tool to grow your business—it dramatically increases risk. Debt will slowly suck the life out of your business. And, if you’re not careful, business debt can lead to years of stress, endless payments and even bankruptcy.

If you’re thinking about taking out a business loan, don’t do it. That’s just dumb!

But if you’ve already taken out a loan for business purposes, whether it’s a mortgage or a line of credit, you can probably deduct the interest you’re paying on the loan from your taxes. But this is one deduction we don’t want you to have.

Now go pay off that loan as soon as possible and never borrow another cent again!

Talk With a Tax Pro

If all this tax stuff makes your head spin and you’d rather spend more of your time focused on your business, we hear you. We can connect you with an experienced tax professional in your area to help you take full advantage of these small-business tax deductions.

Our Endorsed Local Providers (ELPs) take the stress out of tax season by helping you claim all the deductions you qualify for and save you time and money in the process. We can hear you breathing easier already!

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES What Are Business Expenses?

TAXES

What Are Business Expenses?

What Are Business Expenses?

5 MINUTE READ

There’s an old cliché that you have to spend money to make money. It’s the kind of thing your broke finance professor says over his glasses as he tries to tell you how smart it is to take out a huge small-business loan. (Note: Do not do this.) But, like all clichés, it does have some basis in fact. As it turns out, it is not free to run a business. If you have a business, you will have business expenses.

So, what are business expenses? They’re a little bit of everything: start-up costs, equipment you have to buy or rent, the money you spend on a place to do business (like an office or a storefront) and a bunch of other little things you never would’ve thought about before you ventured out into the wild world of business.

So, let’s talk about them.

What are business expenses?

Business expenses are the costs of running your business day-to-day. On your income statement, your business expenses are subtracted from your revenue. What’s left is your net taxable income. These “ordinary and necessary” expenses (as determined by the IRS) that keep your business running can be deducted from your taxes.

What are some examples of deductible business expenses?

If an expense meets the “ordinary and necessary” rule set by the IRS, it’s generally tax-deductible. But certain expenses like meals and gifts are only partially deductible. Here are some of the business expenses you can fully deduct from your taxes:

 

Business taxes can be confusing. Get the help you need.

  • Office supplies
  • Rent on a building used for your business (could be an office, storefront or warehouse)
  • Insurance costs
  • Wages paid to employees (including independent contractors)
  • Employee benefit programs
  • Equipment rentals
  • Bank fees
  • Accounting expenses (including tax preparation)
  • Utility expenses like power, internet and phone systems
  • Legal fees
  • Membership dues (such as to a professional organization)
  • Printing and copying expenses
  • Marketing and advertising expenses
  • Payroll taxes
  • Interest paid

Okay, about this last one: We would never recommend you go into debt to start or run your business. Debt increases your risk exponentially and causes nothing but stress. But, if you already have a business loan, you can and should deduct the interest payments. Then make sure you pay off that sucker and never borrow again. Okay?

What types of things are not deductible?

So, there are a couple of things you might consider to be business expenses that you actually can’t deduct when it’s time to do your taxes. Things in this category include:

  • Donations to political campaigns or political action committees
  • Memberships to social clubs or country clubs (even if you take clients for dinner or the occasional round of golf)
  • Anything illegal like bribes or kickbacks (which, of course, you wouldn’t do anyway)
  • Gifts over $25 in value
  • Tickets to sporting events or concerts

This is where it’s really important to consult a tax pro like one of our small-business tax Endorsed Local Providers (ELPs) to help you sort out which expenses are kosher. It can save you a ton of money and hassle.

How to keep track of business expenses

Any successful business owner knows how much money you have going out and coming in. That’s how you know if your business is profitable or not. So, you need to keep track of what you’re spending. It’s just common sense.

Another good reason to keep track of your business expenses is to keep your personal finances separate from your business finances. Sometimes, especially for small-business owners or people who are self-employed, that can be a challenge.

For example: Can you claim a home office as a deductible business expense? You can, actually, as long as it’s a separate room in your house and you don’t use it for anything else.

If you use a car for work, there are a couple of different ways to track those expenses. The easiest way is to keep track of how many miles you drive while on business. This is perfect for self-employed people or those who drive their personal cars for work. The current rate for calculating the mileage deduction is 58 cents per mile.1

If you own a car that you only use for business, you can track the mileage or keep detailed maintenance records and collect all of your fuel receipts—whichever gets you the biggest deduction.

Get a pro to help you with your business tax expenses

Of course, the absolute best way to keep track of your business expenses is to get a small-business tax expert to help you. Our small-business tax Endorsed Local Providers can help you with everything from bookkeeping to filing your taxes when it’s that time of year. They can help keep you on track with your quarterly tax estimates, and if there are ever changes to the tax code, your pro can be there to make sure you don’t mess anything up.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES The 5 Huge Benefits of Filing Your Taxes Early

 

TAXES

The 5 Huge Benefits of Filing Your Taxes Early

4 MINUTE READ

With over 70% of taxpayers receiving an income tax refund each year of $2,900 on average according to the IRS, we can’t think of any reason you’d want to delay filing your taxes.(1)

But, as awesome as it is to have more cash in your pocket, that’s not the only benefit of early filing. Here are a few more reasons to get your act together early this tax season:

1. Early filers average larger refunds.

IRS data shows that taxpayers who file by late-February get significantly larger refunds than those who file later—around $200 on average.(2,3) Obviously, if you know you’re getting a refund, you’re more likely to file sooner, and that could be part of the reason early filers enjoy larger refunds.

But another reason is that the sooner you start on your taxes, the more opportunity you have to make sure you’re claiming all the deductions you’re eligible for, which takes more time and documentation than claiming the standard deduction.

2. Early filers can protect their refunds from identity thieves.

Filing early may not eliminate the threat of identity theft, but it can protect your refund. If thieves file a return using your Social Security number before you do, the IRS will kick out your return since their records show you’ve already been paid. It can take months to clear up the mess with the IRS and finally receive your refund.

 

Don’t let taxes stress you out. A tax pro is the way to go!

3. Early filers eliminate tax deadline stress.

Any time you face an unpleasant task, it’s best to get it out of the way as soon as possible. Income taxes are no different. You have to fill out the forms and you have to file them, so just grit your teeth and get it over with. Give yourself a fake deadline—well ahead of the April deadline—to get your taxes taken care of. Once your return is filed, give yourself a small reward for being so efficient and responsible. Then relax while everyone else stresses out about getting their taxes done on time.

4. Early filers with a tax bill have time to make a plan.

When you’re facing an income tax bill instead of a refund, it’s natural to put off filing as long as possible. But if you go ahead and fill out your tax forms and file them, you’ll know exactly how much you have to pay—and you won’t have to pay in full until the April filing deadline.

The more time you have to come up with the money, the less likely you are to bust your budget or drain your emergency fund. So, don’t spend the first part of the year with your head in the sand. Get the facts about what you owe, make your plan, and get that tax bill out of the way.

Tip: Save time and reduce hassle by gathering the right paperwork the first time around. Download your free tax preparation checklist.

5. Early filers face less competition for access to their tax professional.

If you found out the hard way that it’s tough to get on a good tax pro’s schedule during crunch time. In fact, if you haven’t set an appointment with a pro by the middle of March, you may have to file an extension.

On top of that, some tax pros will charge more to complete your taxes as the filing deadline approaches. The best way to avoid all that hassle is to get an appointment with your advisor as soon as possible.

Not sure if you need a tax pro? Take our quiz and find out!

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

5 Simple Steps to File Your Taxes

TAXES

5 Simple Steps to File Your Taxes

5 Simple Steps to File Your Taxes

4 MINUTE READ

Does the thought of tax season make you break out in hives? Fear no more! Our easy, step-by-step guide will help you prepare your taxes without even breaking a sweat!

Most people dread this time of year because of all the filing and paperwork involved with taxes. Thankfully, it doesn’t have to be that way! Preparing your taxes can actually be a simple, no-stress process if you do a little work on the front end. All it takes is some organization and time.

Step 1: Know the Tax Filing Deadline

Mark your calendars: Your 2018 tax return is due Monday, April 15, 2019.(1) Income and investment interest forms should be mailed to you by January 31. So keep an eye out for those documents. If you haven’t received your tax statements by the first or second week of February, call the necessary people to be sure you receive your paperwork in plenty of time to get your taxes done.

Step 2: Gather Your Tax Documents

In order to do your taxes, you need to collect all of your tax documents. This includes your:

  • W-2s
  • 1099s
  • Mortgage interest statements
  • Investment income statements

To help get organized, download our free tax preparation checklist.

 

Don’t let taxes stress you out. A tax pro is the way to go!

If you plan on itemizing deductions, you’ll need proof to back up your claims. So don’t forget any receipts for deductions like:

  • Childcare
  • Education costs
  • Charitable giving
  • Home improvements

If this is your first season filing taxes as a married couple, congrats! There are several tax tips newlyweds should know. To keep your tax prep running smoothly, here are a few more documents you may need to add to your list:

  • Form 8822 (if you moved)
  • SS-5 (if you changed your name)
  • W-4 (to adjust tax withholdings based on your new household income)

When in doubt, keep documents and receipts on file until it’s tax time. If you can’t find what you need, you can almost always request replacement copies. You’ll be glad to have these documents on hand in case you discover you can use them when filing your taxes.

Step 3: Organize Paperwork

Purchase a few manila folders, an accordion file or a filing system that will hold your tax documents. In one folder, put all paperwork dealing with income: W-2s, 1099s and investment interest statements.

In another folder, file paperwork for your deductions such as mortgage interest, property taxes, charitable giving and student loan interest.

Create a third folder to file receipts for deductions that aren’t in the form of statements, such as medical and home improvement expenses.

Step 4: File Your Taxes

Once you have all your documents organized, you’re ready to file your taxes! But which filing option should you choose?

According to a 2017 survey, most Americans chose to either hire a professional (32%) or use commercial tax software (35%) when they filed the previous year.(2)

Let’s take a closer look at online versus tax pro filing options to help you determine which is best for you.

Online programs like TurboTax can be straightforward if your situation is pretty simple and you’re planning to take the standard deduction.

However, if your tax return is more complicated—like if you own a business or know you need to itemize your deductions—it’s worth it to hire a tax professional.

You should be confident about filing your taxes this year, whether you choose to file on your own or use a tax pro.

Still not sure which option is best for your situation? Take our simple quiz!

Step 5: Relax!

Your taxes have been filed and you no longer have to worry about missing that April deadline. Thanks to your new organizational system, next year’s taxes will be a breeze.

Remember to promptly file any tax documents when you receive them so you don’t have to search the house for them next year. And once you’ve filed your taxes, save the documents for at least three years.

See? That wasn’t so bad. Was it? If you just take a little time and energy to implement these five steps throughout tax season, you’ll be set. Plus, you’ll eliminate the stress and worry if you’re organized on the front end.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES What Is Taxable Income?

TAXES

What Is Taxable Income?

What Is Taxable Income?

9 MINUTE READ

Taxable income is a subject on everyone’s lips at least once a year—or more if you file quarterly. And this year, it’s the talk of the town. Since the new tax bill went into effect, tax brackets have changed—which means your tax rate probably changed, too.

So how do you know what income is taxable and what isn’t? And how exactly do you calculate it? Let’s dig a little deeper and find out.

What Is Taxable Income?

Simply put, taxable income is the portion of your total income that can be taxed. Yes, that means a portion of your income isn’t taxable. We’ll get to why that is (cough, cough—tax deductions) later. But for now, let’s take a quick look at which kinds of income are taxable and nontaxable.

What earnings count as taxable income?

What do getting your paycheck, bartering and winning the lottery have in common?

They all come with taxable income.

What? Yep. The truth is that the IRS taxes a lot of stuff, not just your annual wages or hourly salary—like most folks assume. If your income falls under any of the categories below, you have to report it on your federal tax return.

Income you earn: Whether you worked for someone or you were self-employed, your earned income is always taxable. This includes wages, salaries, commission, freelance earnings, holiday bonuses and tips.

 

Don’t let taxes stress you out. A tax pro is the way to go!

Winnings: You know how it goes. You win something big like a new Ferrari and you jump up and down—until someone tells you the bad news. You have to pay taxes on that. Yep. It’s true. You must report anything you win from gambling or betting— even prizes you win in a contest.

Money or property you gain: So maybe you didn’t work for a portion of your income. Maybe you earned money from your investments or you rented out your personal property. Is that income taxable? Yes. In particular, the IRS considers all of the following to be taxable income:

  • Alimony
  • Canceled or forgiven debt
  • Interest or dividends from investments
  • Real estate gains
  • Rent from personal property
  • Royalties from copyrights and patents
  • Stock options
  • Unemployment compensation
  • Union strike benefits
  • Gains of virtual currency (like Bitcoin)

Exchanges or bartered services: This one surprises people. Let’s say you’re a mechanic and your best friend—a carpenter—puts a new cabinet in your house. In exchange, you fix the radiator on his car. According to the IRS, both of you must declare the value of the other’s service as income.

Fringes: fringe is a benefit your company gives to you. It can be anything from a paid gym membership to a Christmas bonus. Like prize winnings, you will be taxed on fringes.

What doesn’t count as taxable income?

Yeah, we know what you’re thinking. That’s a lot of taxable income. But believe it or not, the IRS doesn’t tax everything. Here’s what the IRS says is nontaxable income:

  • Accident and personal injury rewards
  • Cash rebates
  • Child support
  • Disability benefits
  • Federal income tax refund (duh!)
  • Foster care payments
  • Inheritances and money gifts
  • Life insurance payouts
  • Scholarships or fellowship grants
  • Social security benefits
  • Veterans benefits
  • Welfare benefits

One quick warning before we move on. Some of these can be taxable under certain circumstances.

For example, let’s say you win a scholarship and you use it for tuition. Well, in that case, you wouldn’t have to worry about taxes. But if you use that money for room and board or you don’t use that money for school at all and you buy a truck instead, it would be taxable.

Our rule of thumb for deciding what’s nontaxable: Don’t guess. If there’s uncertainty, contact a tax professional.

How do tax deductions affect your taxable income?

Earlier, we told you a portion of your income isn’t taxed. Well, let’s get down to it. You can reduce your taxable income. How?

With tax deductions.

What is a tax deduction?

Tax deductions reduce taxable income which, in turn, reduces your tax bill. For example, let’s say Tom earns $42,000 a year as a teacher. He takes the standard deduction, so he can take $12,000 off his annual income: $42,000 minus $12,000 equals $30,000. That means the IRS can only tax $30,000 of Tom’s income.

Wait. Standard deduction?

Right, if you’re not sure about deductions, we can back up. When it comes to filing taxes, you can take a standard deduction ($12,000 for single filers or $24,000 for married couples filing jointly). Or you can itemize deductions from a list made by the IRS (like charitable giving or paid mortgage interest).

The thing to remember here is this: You can’t do both. You can take the standard deduction or you can itemize. How do you choose? Pick the one that saves you more money. If you’re not sure which one to choose, definitely contact a tax pro.

How can I lower my taxable income?

If taxpayers were puppies, this is when their tails would start wagging. Lower my taxable income? Yes! Finally. We’re at the part when we talk about how you can save money on your taxes.

1. Take advantage of tax deductions.

Yes, itemizing is a pain. But if it means saving more money, then don’t be lazy. Itemize.

2. Use adjustments to income if you can.

Adjustments to income are the tax filer’s secret weapon. They work like itemized deductions and the more you qualify for, the more you can take off your taxable income. But here’s thing: They’re not itemized deductions. That means even if you take the standard deduction, you can still use them.

Okay, so how do you know if you qualify for adjustments to income? You do if you answer yes to any of these questions:

  • Did you pay student loan interest?
  • Did you make contributions to a traditional HSA or IRA?
  • Did you receive income from self-employment?
  • Did you teach K-12?
  • Did you pay a penalty for withdrawing from a savings account?

You can find more adjustments to income on the IRS website.

3. Contribute more to a traditional 401(k).

You don’t pay taxes on income that you invest in a traditional 401(k). For example, let’s say you make $53,000 and you invested $3,000 in a 401(k). Standard deductions and itemizing aside, you can take $3,000 off your taxable income.

So, if your employer gives you the option to invest in a traditional 401(k) and you’re on Baby Step 4, feel free to contribute to your 401(k) at least up to the employer match (if offered). You can put in up to $19,000 a year—or if you’re 50 or older, you can contribute an extra $6,000.

Now, we want to be clear on something: We don’t want you to invest just to reduce your taxable income. Yes, it’s great that contributing to a traditional 401(k) can help reduce your tax bill. And if you have one, go for it. But there are other investing options out there—like a Roth IRA—that can help you grow your actual investment tax-free. So, once you meet the match in your 401(k), start investing in there.

What Tax Bracket is my Income In?

Okay, once you calculated your taxable income, the next step is to determine your tax bracket. Think of tax brackets as an income range that corresponds to a tax rate. If that sounds like a mouthful, check out the chart below to get a clear idea of what the new 2018 tax brackets look like.

2018 Marginal Income Tax Rates and Brackets
2018 Marginal Tax Rates Single 2018 Tax Bracket Married Filing Jointly 2018 Tax Bracket Head of Household 2018 Tax Bracket Married Filing Separately 2018 Tax Bracket
10% $0 – $9,525 $0 – $19,050 $0 – $13,600 $0 – $9,525
12% $9,525 – $38,700 $19,050 – $77,400 $13,600 – $51,800 $9,525 – $38,700
22% $38,700 – $82,500 $77,400 – $165,000 $51,800 – $82,500 $38,700 – $82,500
24% $82,500 – $157,500 $165,000 – $315,000 $82,500 – $157,500 $82,500 – $157,500
32% $157,500 – $200,000 $315,000 – $400,000 $157,500 – $200,000 $157,500 – $200,000
35% $200,000 – $500,000 $400,000 – $600,000 $200,000 – $500,000 $200,000 – $300,000
37% Over $500,000 Over $600,000 Over $500,000 Over $300,000

Chart: 2018 Marginal Income Tax Rates and Brackets(1)

The government made the new brackets lower than the 2017 brackets by a few percentages. For example, the 2017 brackets taxed  $37,950-$91,900 at a rate of 25%, while under the new brackets, someone making $38,700-82,500 would be now be taxed at 22%.

The U.S. tax system is progressive (flashback to civics class), and that means the higher your taxable income, the more taxes you pay.

But here’s the thing, folks: You don’t just fall into one income range (unless your income is in the first range, then you do). Your income is spread across them. For example, let’s say you’re married filing jointly and you have a taxable income of $55,000. Here’s what that would look like:

First tax bracket: $19,050 x 10% = $1,905
Second tax bracket: $35,950 x 12% = $4,314
Total income tax : $6,219

And that’s the magic of the American tax system.

Get Your Taxes Done Right

Tax brackets, taxable income . . . If your head is spinning right now, you may need something stronger than aspirin to get your taxes done.  If your tax situation is simple, you should have no problems filing taxes on your own. But if your taxes are complicated (like if you have multiple sources of income or you own a small business), working with a tax pro may be a smart move. In these scenarios, a missed deduction could cost you a lot more than working with a pro.

Don’t worry, if you’re looking for a trustworthy tax expert in your area, we can help! We’ve vetted some of the best tax pros in the country and can recommend the best ones near you. They have years of experience and can answer any questions you may have about the changes in the new bill or to your return.

The sooner you find a pro, the sooner you can check taxes off your list.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

TAXES Married Filing Jointly? What You Should Know

Married Filing Jointly? What You Should Know

Married Filing Jointly? What You Should Know

7 MINUTE READ

Romantic or not, taxes are a part of life. And now that you and your spouse are officially a part of each other’s lives, you starry-eyed lovebirds can now change your filing status to married filing jointly.

It’s not the date night you were expecting, right?

Well, don’t feel bad. Every married couple has to do their taxes. Even the most perfect Nicholas Sparks couple has to fill out their Form 1040 at some point. But what does married filing jointly mean? And how is it different than married filing separately? Let’s dig a little deeper and find out.

What Is Married Filing Jointly?

Married filing jointly (or MFJ for short) means you and your spouse fill out one tax return together.

Now, don’t get us wrong: You don’t have to file jointly. You could file separately. But it’s rare (like four-leaf clover rare) to find yourself in a situation in which filing separately is better than jointly. We’ll talk more about those situations below.

Who Can File Jointly?

If you just got married, congrats! But you may not be able to file jointly just yet.

You need to have been married before January 1 of this year to file last year’s taxes jointly. So if you got married on December 31 of last year or earlier, you can file together. But if you got married on or after January 1 of this year, you must file separately this tax season.

 

Don’t let taxes stress you out. A tax pro is the way to go!

How Do You File Jointly?

Filing your taxes jointly isn’t that different from filing as single or head of household. You and your spouse still have to report your income and list deductions and credits. The biggest difference is that you’ll choose married filing jointly as your filing status instead of the others.

But if this is your first tax season as husband and wife, you’ll need to take care of a couple of things first:

If this is your first tax season as husband and wife, you’ll need to take care of a couple of things first.

1. Notify the IRS of any address changes.

If you moved, be sure to notify the IRS of your address change by filing Form 8822.

2. Tell your employer you’ve moved.

Don’t forget to let your employer know of any changes to your name and/or address so your W-2 arrives on time and in good order.

3. Report any name changes.

Did you take your spouse’s last name? Well, make sure you tell the Social Security Administration so the name next to your Social Security number matches the name on your tax forms. If you don’t, the IRS will hold your tax refund until you resolve the issue. Fill out Form SS-5 and file it at your local Social Security office.

Now, if you don’t have time to change your name before the tax deadline, you can file using your maiden name. But make sure you take care of the name change by next year.

Can You File Jointly if You’re Widowed?

Yes. If your spouse passed away during the past tax year, you can file jointly for that year. After that, you have to file as a qualifying widow or widower, head of household or single filer.

Married Filing Jointly vs. Married Filing Separately

As we said before, the IRS doesn’t force you to file jointly. You can always file separately. Married filing separately is a filing status for married couples who, for whatever reason, decide, “Meh, we don’t want to do our taxes together.” As a married couple, you should merge your finances, but there may be a tax nuance or two that could cause you to consider filing a separate return.

When do you want to file separately?

Basically, our rule of thumb is this: File separately when it saves you money. Whichever filing status puts more money in your pocket (or takes less money out of it), that’s the filing status we recommend.

It’s rare that filing separately will mean more money for you. But there are some circumstances in which this is the case, like these:

1. Your spouse isn’t paying their taxes.

Your spouse may play “catch me if you can” with the IRS and not pay their taxes. We don’t recommend this but, in that case, you should definitely file your taxes.

2. You don’t know if your spouse is honestly reporting their income or deductions.

Remember: When you file jointly, you’re both held responsible for the accuracy of your tax returns. If your spouse has intentionally reported false numbers, the IRS will see you as a partner in crime.

3. You or your spouse want to claim medical debt as a deduction.

If you or your spouse had medical bills last year, you may be able to deduct some of it. How much you can deduct depends on how much money you make.

Basically, the more income you make, the less you can deduct from your medical expenses. And sometimes you make so much you can’t deduct anything. So if your spouse makes a lot more than you do and you file jointly, your medical deduction will be a lot less than if you file separately.

Figuring out which way works best can be mathematically intense. If you’re not sure, take your case to a tax pro and let them do the math for you to be safe.

What are the advantages of married filing jointly?

More likely than not, you’re better off filing jointly. Here are a few reasons why:

1. You have a higher standard deduction.

If you file separately, you only get a $12,000 standard deduction. Filing jointly doubles that amount to $24,000. Yeah, that’s right. We said $24,000! Most tax filers can substantially lower their taxable income with that.

2. You get more tax credits.

Tax credits are like gift cards from the IRS—they apply to your final tax bill and reduce it dollar-per-dollar. Call it a late wedding present (or an anniversary gift), but the IRS gives more tax credits to married couples filing jointly than to couples filing separately.

If you’re married filing jointly, then you may qualify for some of these tax credits:

  • Earned Income Tax Credit
  • Child and Dependent Care Tax Credit
  • Adoption Credit
  • Credit for the Elderly and Disabled
  • American Opportunity Credit
  • Lifetime Opportunity Credit for Higher Education Expenses

Now, just to be clear: You can get these credits if your filing status is married filing jointly, single or head of household. But if you’re married filing separately, you won’t be eligible.

3. You can save time.

We can’t overstate this. When you file jointly, you only have to fill out one tax return—not two. So you’re saving time. And if you’re using a tax pro, filing separately could cost you more money.

4. Filing jointly is less complicated.

When you file separately, you have to follow certain rules that can make your day a little thornier. For example, only one of you can claim your child as a dependent. On top of that, you’ll have to agree on whether you’ll take the standard deduction or itemize. Yep. No cherry picking. If your spouse wants to itemize, then you have to itemize.

Want to Spend Less Time on Taxes and More Time With Your Spouse?

Every marriage hits a speed bump every now and then, but taxes don’t have to be one of them. If you have a complicated tax situation or you’re not sure whether you should file jointly or separately, working with a tax pro is likely your smartest option. And if you’re looking for a trustworthy tax expert in your area, we can help!

We’ve vetted some of the best tax pros in the country. They have years of experience and, believe it or not, they love this stuff. Our pros can talk taxes all day! They have a thorough understanding of the tax changes this year and how they affect you and your spouse.

The sooner you connect with a pro, the sooner you can check taxes off your to-do list and get back to more, well, romantic things.

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