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Taxes

Jan 07
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Simple Steps to Do a Financial Checkup for the New Year

By Credit, Insurance, Investments, Money Management, Retirement, Saving, Taxes No Comments

You may visit your doctor once a year to make sure all is well, but there’s something else to pencil on the calendar: an annual financial checkup.

If you were on a long road trip, you’d stop occasionally and look at the map to see if you were headed in the right direction. An annual financial checkup serves the same purpose. It’s an opportunity to review how you’ve done financially over the past twelve months and make sure you’re still headed in the right direction when it comes to managing your money.

A good time to check in with your finances is before the end of the year so you can take advantage of any tax-saving strategies, but if you can’t fit it in during the busy holiday season, plan on doing it as soon after the New Year as possible. Here are the key steps to take when planning a money checkup:

1. Identify Your Goals

The first step in your financial checkup is evaluating your financial goals. Have you made progress on them this year? If not, where have you fallen short? Can you figure out why? Have your goals changed during the year? If so, revise them and write them down.

Next, consider what new money goals you’d like to set. For example, you may want to fully max out your 401(k) at work or add another $10,000 to your emergency fund. Establish clear goals and break down the action steps you need to take monthly, quarterly and annually to reach them.

2. Evaluate Changes in Your Personal Situation

Have changes in your personal situation taken place in the last year or do you anticipate any major changes in the near future? A job change, divorce, adding a baby to your family, retiring, buying a house, getting married, or moving can alter your income and your lifestyle significantly.

You may need to adapt your budget, your spending, your savings, and your investments. Your tax filing could also be affected if you’ve added to your family or you’ve seen a major increase or decrease in your income. Having time to plan for these changes in advance will make the transition much smoother.

3. Protect Your Assets

Next on your annual financial checkup to-do list is considering how well you’re protecting your assets. Start by reviewing your homeowner’s or renter’s insurance, health insurance, auto insurance. Don’t forget to protect the greatest asset of all – your income-earning ability – with long-term disability insurance.

TIP: While reviewing your insurance coverage, also review your premiums. Consider whether you can save money by switching to a different carrier or bundling your various insurance coverage together with the same provider.

4. Prepare for the Unexpected

Review your will, and if applicable, your estate plan. Have any changes taken place that requires updating? If so, you may need to update your will.

Also, review your life insurance coverage to make sure you have a large enough policy to protect your loved ones financially if something should happen to you. And if you don’t have life insurance yet, that’s something to consider getting sooner, rather than later. The younger and healthier you are, the lower your premiums are likely to be. Meet with a life insurance agent to discuss whether a term or permanent life insurance policy is best for your situation.

5. Evaluate Your Investment Performance

Calculate the return on each of your stocks, bonds, or mutual funds. Are you satisfied with their performance compared to the rest of the market? If you don’t believe the investment will recover its losses, it may be time to sell the dogs.

The end of the year is a good time harvest tax losses. Harvesting losses allows you to offset capital gains on your investments with losses stemming from under-performing investments. This strategy is effective in a taxable brokerage account, since investments in a 401(k) or IRA are already tax-advantaged.

WARNING: Watch out for the wash-sale rule when harvesting tax losses. This IRS rule dictates that any new investments you purchase within 30 days of selling an investment to harvest losses must be substantially different.

6. Evaluate Your Debts

As part of your annual financial checkup, consider how well you’re doing with managing debt. Specifically, evaluate your debt to income ratio. Has your credit card debt decreased this year? If not, it’s time to figure out where the leaks are taking place and try to plug them. It’s difficult to get ahead and invest when too much of your income is going to interest payments on credit cards.

How’s the interest rate on your mortgage? Should you consider refinancing? Even a small dip in rates can make a big difference in the life of your mortgage, but you have to consider closing costs to see if it’s worthwhile.

Lastly, how’s your credit score? If you haven’t ordered your free copies of your credit report, now’s a good time to do it. You can get one free copy of your credit report per year from AnnualCreditReport.com. Once you have your copies of your credit reports, review them carefully and dispute any errors you come across.

7. Reduce Your Income Taxes

This is a good time to plan for next year’s taxes. What can you do to minimize them? Add up all your allowable deductions and see if you can itemize. Review the list of allowable deductions and make sure you take advantage of any you’re eligible for. Consider bunching deductions into one year or accelerating deductions by paying tax-deductible items early to help you reach the threshold for deducting.

For instance, medical expenses can only be deducted if they exceed 7.5% of your income. If you’re close, pre-paying an orthodontia bill or scheduling that elective surgery before the end of the year could save you some money on taxes.

8. Review Your Retirement Plans

Last but not least, look at how you’re doing with regard to retirement funds. Are you contributing the maximum to your 401(k) plan? This is one of the best tax-reducing strategies available. If your employer doesn’t have a 401(k), does it offer any other kind of plan? If not, consider setting up an IRA on your own.

Also, look into whether your company offers other ways to save, such as a Health Savings Account. An HSA isn’t a retirement plan, per se, but it’s a good way to save for future health care expenses on a tax-advantaged basis.

NOTE: HSAs are associated with high deductible health plans only. But they offer triple tax advantages: tax-deductible contributions, tax-deferred growth and tax-free withdrawals for qualified medical expenses.

How’d you do? If your financial health is in good shape, congratulations! If it can use a little work, at least you know where you need to concentrate your efforts. And remember to update your annual financial checkup at the same time next year to track your progress.

Originally published at TheBalance.com by Deborah Fowles.

Dec 27
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Year End Giving that Gives You a Tax Write Off

By Money Management, Taxes No Comments

Syndicated: ClarkHoward.com | by Wes Moss

Hard to believe but ‘tis the season – not to be jolly, but to start thinking about your taxes!

Yes, Tax Day isn’t until April, but there are many steps you can take in these waning days of 2016 to reduce your obligation to Uncle Sam, or boost the size of your refund.

Charitable giving is one of the best ways to cut your tax bill. It’s my favorite because it allows us to help others while helping ourselves. Here are six ways to give your way to a smaller taxable income.

Write a check

The money you give to qualified charitable organizations is 100% deductible from your taxable income up to 50% of your adjusted gross income if you itemize your deduction. Before you make a sizeable contribution you might want to check out the intended recipient on one of the philanthropy watchdog websites. They’ll give you an idea of how efficiently a non-profit operates.

Empty your closet

Donating clothes and other household items to charity can result in a tidy tax deduction. Contributions up to $250 require a receipt from the organization. Donations valued at between $251-500 require a receipt from the charity with the name, address, date, location and a list of items donated. If you are making a donation valued at $501 to $5,000, you must provide information about when you acquired the items and how much you paid for them.

Donate your car

There are two ways your old car might help a non-profit. They may sell your clunker, in which case your deduction is limited to what the organization gets for it. Or, the group might use your vehicle in its work, for delivering meals to shut-ins, for example. In that case, you can deduct the fair market value of the car or truck.

Give stocks

If you’d like to make a large gift, consider donating appreciated stocks or mutual fund shares that you’ve owned for more than one year. This is a tax-time twofer. First, you get to deduct the fair market value of the stocks on the day you donate them. Plus, you avoid capital gains tax on those shares.

You might also consider setting up a donor-advised fund, a sort of personal charitable foundation. The value of securities you place in the fund is tax deductible. You will eventually sell those stocks and use the proceeds to make contributions to your favorite non-profits.

Give to family – or anyone else

You can give up to $14,000 to as many people as you like without filing a gift tax return. This is a good way for folks in the 20 states with estate or inheritance taxes to reduce the size of their taxable estate over a period of years.

Share your IRA

If you are at least 70 ½ years old, you can donate up to $100,000 from your IRA to charity. Such gifts count as a required minimum distribution (RMD) but are not taxed like regular RMD withdrawals.

So, there you have it – a holiday gift basket of ideas to brighten the lives of others while easing your own tax burden. Tidings of comfort and joy, indeed!

Related article: Owing Taxes SUCKS! 3 Ways to Reduce Taxes Owed!

Mar 06
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Getting A Tax Refund Is Bad, Actually

By Money Management, Taxes No Comments

Don’t give away free money.

The IRS rolled out the latest version of its tax calculator on Wednesday after updating it to reflect the new withholding tables. The free tool is designed to help taxpayers be sure they don’t have too much money taken out of their paychecks for taxes.

That’s because getting a big, fat refund is actually a bad thing.

While some people look forward to getting refunds for taxes they overpaid ― and some even consider it a way to save money ― overpaying your taxes is essentially giving the federal government an interest-free loan. The government gets to use your money for the better part of a year, then return it to you without a nickel of interest. So just to be clear: Getting a lump-sum check back from the IRS is actually bad, because you could have had that money in your savings account, where it would have earned interest, or used it to pay off debt ― or used it to not incur debt in the first place, because you had cash on hand.

With the IRS’ free tool, you can ensure you don’t have too much money held out of each paycheck.

This calculator is easy to use.

 

What You’ll Need

To use the calculator, you’ll need your most recent pay stubs and most recent income tax return. Your completed 2017 tax return will help you estimate your 2018 income to expedite the calculation. If you’re self-employed or likely to have income swings later in the year, you’ll probably want to revisit the calculator again later in 2018.

The goal, though, is to set up your deductions so you don’t overpay taxes or get a refund next year ― something that roughly 75 percent of Americans currently receive.

The IRS is not terribly interested in getting more people to break even on withholding if they like getting a big check every spring, said Mark Mazur, director of the independent Tax Policy Center and a former tax official with the U.S. Treasury Department.

“People seem to like to get about the same refund year after year,” Mazur said. “They seem somewhat surprised when things are different.”

And ultimately, the burden of estimating how much a taxpayer will owe in taxes falls to the taxpayer. All salaried workers must submit a W-4 form to their employer that authorizes the amount of money (in the form of allowances) that they want taken out of their paychecks to cover their tax obligation. The flip side of overestimating what you will owe is underestimating it, which could result in getting slammed with a hefty tax bill when you file your return.

Why The Calculation Matters

The fear of owing taxes is one reason many taxpayers overpay during the year, according to Motley Fool. After all, the logic goes, it’s a far more pleasant experience to get a refund than suddenly have to cough up cash to pay the IRS.

The problem, though, is that people are far better off owing money than getting refunds, and here’s why: The bulk of Americans are extremely financially insecure. An estimated 57 percent of U.S. adults have less than $1,000 in the bank, while 39 percent have no savings at all. By limiting the amount of money we bring home each pay period, we’re putting ourselves at greater risk to incur more debt ― and with more debt comes interest charges.

Although many filers do use their refunds responsibly, a good chunk don’t. They see the money as “free cash” and an opportunity to splurge. In reality, a tax refund is just your money that you failed to collect up front, and you’re just getting it back from the government with no interest accumulated.

Check out the withholding calculator, then follow its recommendations for allowances when filling out or filing a new W-4.

 

Originally appeared on HuffingtonPost.com.

Mar 03
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Owing Taxes SUCKS! 3 Ways to Reduce Taxes Owed

By Money Management, Taxes No Comments

Yes, owing taxes SUCKS, especially when it is an absolute surprise. Owing the IRS can be a financial burden on an already tight budget. Despite how we may “feel” about it, owing taxes is essentially another “Loan” owed and can potentially negatively affect credit scores.  Here’s how, as well as three things to do to avoid having to owe taxes next year.

Too much, too little, too late

When “not enough” OR “too much” taxes are being taken out during the year, it means that the exemptions on your W-4 or your tax deductions may be incorrect.

If “too much” taxes are being taken out of your check throughout the year, the government is “borrowing” that money from you. They pay the amount they “borrowed,” throughout the year, in a lump sum called a “Tax Refund.” Getting a refund may mean that you gave the government an interest-free loan.

Conversely, if “not enough” taxes are being taken out of your check throughout the year, you are “borrowing” the money from the government.  The amount, you owe in taxes, is money “borrowed” that you must pay back. The great thing is that if you are not able to pay it back in a lump sum, you can make payment arrangements with the IRS over time to avoid additional fees and penalties.

How taxes can affect credit scores

If the Taxes owed are not paid in a timely manner, the IRS may report the delinquent taxes as a “Tax Lien” on your credit report under the Public Records section of your credit report. This will negatively affect the Payment History category of your credit score, which is 35% of the calculation. The amount does not matter. Whether $500 or $5,000 is owed; the negative effect on the credit score will be the same.

If the tax lien is reported on your credit report as “unpaid” and you have paid the taxes due in full, get a copy of the Satisfied Tax Lien notice from the IRS and then dispute the information on your credit report to have it updated as “Satisfied.”

Here are three things to do to to not owe taxes next year.

Trust but verify

Some people love to DIY (Do It Yourself) everything, including their taxes. And there are great Tax software available to help you do your taxes. You can even do your taxes online for free. If you choose to do your taxes, just remember President Ronald Reagan’s quote, “Trust but Verify.”  

If you owed taxes last year, consult with a tax accountant or tax professional, like Dryden Tax and Accounting, Inc., to make sure you don’t leave out any new deductions. Also, consult with the tax professional to make sure you don’t write off something that doesn’t qualify.

Know your place

One of the reasons people end up owing taxes is because they have the wrong number of exemptions on their W-4 form. 

Make sure to review, and update if necessary, your W-4 form with your employer annually, preferably at the beginning of each year. Consult with a tax accountant or tax professional, like Dryden Tax and Accounting, Inc., for guidance.

Give yourself credit

Many people have turn their hobbies into a business. However, they don’t give themselves credit because they don’t take advantage of available business tax write offs.  Not taking advantage of every eligible business tax write off is like giving away extra money. So, whether you’re selling your secret homemade recipe cakes or providing consultation; make sure you keep your track of all business related expenses and receipts.  

Certain business meeting meals to cell phones used for your business, and more, may be eligible for business tax write offs. Again, consult with a tax accountant or tax professional, like Dryden Tax and Accounting, Inc., to help you understand what business expenses are eligible tax deductions. 

The best way to win the Tax Game is to GET NOTHING back and more importantly, OWE NOTHING! 

Feb 26
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13 Things You Didn’t Know You Could Write Off

By Business, Money Management, Taxes No Comments

Syndicated | Create & Cultivate

If you are a business owner, check out this great information from Create & Cultivate about 13 Things You Didn’t Know You Could Write Off. Be sure to consult with your Tax Professionals for details regarding these and other tax strategies.

time for taxesTax season is officially here. Before you start panicking about getting your receipts together and setting an appointment with your tax preparer, we’re here to help ease some of the stress before you even make the call. Sure, taxes can be a drag, (or something to look forward to if you know you’re bound to get a tax refund), but if you’re like most independent contractors or freelancers, you might have to owe a hefty amount of money back to your state and the IRS.

However, there are so many things tax payers fail to claim in their yearly taxes that could definitely help ease the fees that you owe back. To help you get a tax break, we’ve listed some of the most overlooked write-off items that people fail to claim.

Out-of-pocket charitable deductions

If you contribute to your community and help with charitable work, or give charitable donations that include out-of-pocket costs, your good deeds may be rewarded with a tax write-off. If you’ve donated food for a soup kitchen, bought clothes for a women’s shelter, or even driven your car for charity, make sure to keep those receipts as they can work as a great tax deduction.

Job hunting costs

Job hunting can be time consuming, and without realizing it, you spend money heading from interview to interview. If you’re unemployed, and you’ve spent money on transportation, printing new business cards or resumes, or have paid a hefty amount to an employment agency to help you land a job, you can definitely deduct these and other qualifying expenses this tax season.

Moving expenses for your first job

Once you’ve moved past the job hunting phase and have landed your dream job on the other side of the town, or even the other side the country, you’ll need to move closer to your job. If you’re moving farther than 50 miles away, you can write-off your moving expenses this season, including transportation.

Child care credit

If you have to leave your child, who is filed as your dependent under 12 years of age, with a sitter or at a daycare while you’re at work, your child care expenses can serve as a tax credit, up to $3000.

“Smart” tax

If you are going back to school to sharpen your skills, are taking special courses for work, or have bought literature (books or magazines) that are relevant to your field of work, make sure to mark these as your “smart taxes.” Which, goes to show that any money that you spend on your education is always an investment.

Baggage fees

Did you know you can get those annoying baggage fees right back into your pocket? Save the airline receipts from any checked baggage that you had to pay for, and mark them as a deduction when you file.

Energy-saving home

If you’re eco-savvy and have turned your house into an eco-friendly home in the past year, you can be rewarded with a great tax credit for your improvements. We know you went for paperless last year, but in this case you might want to keep those paper receipts.

Financial advisor/accounting

If you have a financial advisor, tax preparer, or even paid to use a program like Quickbooks or Intuit to manage your finances and taxes, you can deduct those fees for the year in which you payed for them. If you still have your receipts from paying your preparer or the programs that you bought, make sure to include those in on your deductions!

Healthcare for self-employed

If you’re a boss lady of your own and are paying your own bills, like your own healthcare, then make sure include … (continue reading 13 Things You Didn’t Know You Could Write Off by Create & Cultivate)