Life Events That Affect Your Taxes

Life Events That Affect Your Taxes

Did you know that only 1 in 5 millennials knew that big life events such as marriage, having kids or buying a house can affect taxes? This is according to a recent survey by H&R Block, which also found that even though almost 3 in 4 millenials had recently gone through some of these major life events, they still didn’t know that it could impact what they owed or the refund they could be expecting. This means that 72% of those surveyed were going to miss out on potential money back.  

Life events affect more than just millennials though. Various events that take place throughout your life that may impact your taxes. Here are some common life events that every taxpayer should be aware of. 

Moving to a New State

Deciding to move to a new location can be an exciting time in your life. Unfortunately, it can make your taxes a little more confusing as there are a number of things to take into consideration. One common example is that you’re moving for work. If your employer is moving you to another state, moving expenses could be tax free or it might show up on W-2 as part of taxable income. Another situation is if you decide to move to another state and rent out your house. More than likely you’ll have to file an income tax return for your old state as well as your new state. Moving to a new state will almost always mean having to file taxes in two states, which is important to be aware of. 

Getting Married 

Most people probably aren’t thinking about their taxes when it comes to tying the knot. After the festivities, though, don’t forget that filing jointly with your spouse can actually bring about some welcomed tax breaks. Joint filing typically means you might see lower tax rates and a bump when it comes to deductions. However, there are some situations, known as the “marriage penalty,” where getting married actually might increase your taxes. It’s best to check with a professional to make sure your filing is accurate. 

Starting a New Job

You might not have thought about it when you signed on to your new job, but this life event can significantly affect your tax return. One thing to keep in mind are the job search expenses you accrued that you may be allowed to deduct on your Schedule A. When you get a new job, you’ll have to fill out a W-4 form for your new employer. Make sure you go over this carefully as the number of allowances that you claim will affect the amount that will be withheld from every check. Starting a new job will also mean changes to your 401k plan. If you changed jobs recently, it may be a good idea to reach out to tax preparer. 

Buying a Home

When you finally get to walk across the threshold of your new home, remember all the tax breaks you can  now take advantage of. There are a number of tax deductible expenses that a new home owner can claim such as mortgage interest, which is one of the most common forms of deductible expenses that a homeowner can claim. Taxpayers who bought a home may be able to benefit from itemizing their deductions, but only if they are bigger than their standard deduction. The new 2018 tax code however, has added a new cap to common itemized deductions. Other things to consider are real estate taxes, points, mortgage insurance premiums, tax-free profit on sale, adjusting your withholding and more. Consider contacting a tax preparer to make sure you don’t miss out any deductions you’re now qualified for as a home buyer. 

You Started a Business

Congratulations! You’ve made your dream come true by starting a small business. There are plenty of stressors that come with starting a business as well as some big wins. However, starting a business can make filing your taxes more complicated for a variety of reasons. Some of the things you’ll have to take into consideration include determining the business entity your business falls into, the accounting method that was used to keep records, as well as the various tax breaks that may be available to you. On the flip side, starting your own business might actually mean you’re on the hook for various self-employment taxes. One significant way a tax preparer can help a new business owner is helping the client decide between a Sole Prop and S-Corp, that is, sole proprietor or an S corporation as these will have different tax implications. While it can be exciting to finally start your own business, it’s important to be aware of all the tax implications that come along with it. Hiring a professional may help you avoid any unpleasant surprises this filing season and can help you.

Having Kids 

You’ve made the decision to have kids, which is not only great news for your family, it can also mean good things for your taxes. This is because having kids opens up a whole new set of tax breaks that weren’t accessible before. Claiming dependents on your taxes is another way to greatly reduce the taxes that you owe. Did you know there is even a tax credit that you can receive up to $2000 if you had a baby within the last year? Growing your family allows you access to a whole number of potential tax benefits. With the help of a tax preparer, you can understand all the different credits and deductions that are now available to you and your family. 

Separating or Getting Divorced 

A separation or divorce can often be a painful experience. The last thing on your mind is probably how this will affect your taxes. While this may be the case, getting divorced does have implications for the way you’ll be filing your taxes. For example, is alimony involved? What about child support? And who gets to claim the dependents? Are you now qualified for innocent spouse relief? These are all questions that you’ll now have to consider and determine whether or not these are something that affects you. Be aware though, the new Tax Cuts and Jobs Act has also made changes when it comes to alimony and other factors that play a role in divorce. A professional will be aware of all the ways the Tax Cuts and Jobs Act may affect your divorce so that’s one less thing you’ll have to worry about during this complicated time. 

Experiencing a Hardship or Death

Unfortunately, there can be difficult times in your life that can affect you and your family. Not only can hardships be emotionally trying, they can be financially expensive as well. One example is a family making the decision to take penalties from their IRA in order to secure the funds needed for health care costs such as cancer treatment. For such circumstances, you may be eligible for a hardship waiver. In the event of a death in the family or of a spouse, it is up to the executor to file the final tax return for the deceased, which is required by the IRS. Some things to consider include possible state inheritance taxes or federal estate taxes that will still be due.  

These are just some common life events that will affect your taxes, there are a number of other events that can affect your taxes as well. Determining which life events will affect your taxes and which ones won’t is another part of the process. While various milestones in your life can be exciting, or even painful, don’t forget to consider how these events can change the way you manage your taxes. Just like life, taxes can be complicated, especially with new legislation that will be affecting your taxes in unforeseen ways. To be aware of all the ways taxes will impact your life events, consider hiring a professional tax preparer. That way, you can spend more time enjoying the new changes in your life and less time worrying about the nitty gritty of taxes. 

5 Reasons to Hire a Tax Preparer

5 Reasons to Hire a Tax Preparer

Right about now you’re probably trying to gather necessary documents to get ready for tax season such as W2 forms, various 1099 forms and other business expenses. You might be thinking that once and for all you’re going to be in control of your finances and will file your taxes on your own. Let’s face it though, tax season can be frustrating and for many, anxiety inducing. If you have a complicated tax situation due to owning a small business or having a few side hustles, you’re taxes will likely be even more confusing. Misfiling or not filing by the deadline may also lead to fines from the IRS. The good news though is that you don’t have to go at it alone. Hiring a tax preparer can relieve much of the stress associated with filing your taxes. If you find yourself thinking, should I be looking for a tax consultant near me, here are 5 reasons to hire a tax preparer. 

1. It Will Save You Time

Did you know that there are over 40,000 pages of federal rules and information when it comes to taxes? The statutes that Congress passed regarding taxes totals about 2,700 pages, totaling well over 1 million words. To put that in context, that’s longer than the King James Bible which has 788,280 words. That’s not all though. The IRS has additional statutes and regulations that implement the federal tax laws. According to the National Taxpayer Advocate, there are roughly 9,000 pages worth of IRS regulations, totalling approximately 4 million words. That doesn’t even include individual state tax rules either. It would probably be a safe bet to say the average American simply doesn’t have time to read through all these documents. That’s why hiring a tax preparer will save you time. Even if it might not be possible to know every detail, they know where to find the information that you need. 

2. Tax Preparers Will Be Updated on All the New Tax Laws

This year in particular filing taxes may be more daunting than ever as this will be the tax season that many Americans will see how new tax cuts will affect them. In fact, the 2018 tax overhaul will have Americans dealing with the most significant tax changes that they’ve seen in over 30 years. Making mistakes with filing your taxes can even lead to triggering an IRS audit, which will lead to even more stress and confusion down the line. Part of a tax preparer’s job is to be knowledgeable of all new tax changes that have occurred. Taxes are already confusing and this year you’ll likely have to dedicate a large amount of time and energy trying to read through and understand the new tax changes. Hiring a tax preparer means you can work with someone who’s already researched all the new changes so you don’t have to. 

3. You Could Owe Less in Taxes

The only thing worse than doing your taxes is finding out you owe a significant amount of money to the state or federal government. That’s where tax deductions and exemptions come in. Deductions will lower the amount of your income that you have to pay taxes on by lowering your taxable income. There are two main ways to do this, through standard deduction or itemized deductions. The IRS notes that it can generally be best to itemize deductions if the total itemized deductions are greater than the standard deduction. Sound complicated? Don’t worry, that’s were a tax preparer comes in.  A tax preparer will be knowledgeable on all deductions or tax credits that you will qualify for. Often times, when doing your own tax returns, you might miss out on some of the tax credits you can be qualified for simply because you didn’t know. With a tax preparer, you can work with someone who makes a living by knowing all the tax credits that may be available to you. Hiring someone who is specifically working for you will likely be the best way to owe less in taxes. 

4. You’ll Have Help in the Event of an Audit

Taxes are confusing, and if you make a mistake, you may find yourself getting a letter from the IRS. Filing your taxes yourself or through an online system does not guarantee that you’ll have someone represent you in the event of an audit. While audits are rare, they do happen, and having to stand in front of the IRS by yourself is certainly not something for the faint of heart. If it doesn’t come to an audit, there are also other things to be aware of such as a CP200 or CP3219a, which requires you to follow up with the IRS. If you ignore these letters, it can cause problems for you with the IRS, which you probably want to avoid. Having someone to explain these letters and help you through it will be a huge relief and significantly reduce your stress in an already stressful situation. If your tax preparer is also a CPA, they will be able to prepare you for the situation and represent you in front of the IRS if the need ever arises.  

5. It Will Give You Peace of Mind

Benjamin Franklin had it right when he said that one of the only things you can be certain in life about is taxes. Just because they come around every year, doesn’t mean that you have to be caught unprepared – again. There are so many different aspects that go into filing taxes and concerns about filing them correctly. When you hire a tax preparer, you can rest easy knowing that a knowledgeable professional will take care of it for you. Additionally, a professional will be able to explain various categories, claims and exemptions that you might have normally skipped over. Knowing that you can call an individual who knows your specific case and not a stranger can give you peace of mind. Should you have any questions about the process, being able to easily reach out to someone will help you feel less overwhelmed. 

With April right around the corner, you’ll want to get a jump on hiring a tax preparer. When you have the help of a professional, filing your taxes no longer has to be such a dreaded process. So whether you’re new to filing taxes or you have a side hustle or you simply aren’t sure how the new tax act will affect you, save time and money and get the most from your upcoming tax return with the help of a professional tax preparer. Remember, the sooner you find yourself a qualified tax preparer, the better your chances will be of getting your taxes filed by the April 15th deadline. 

What Your New Business or Side Hustle Means for You This Tax Season

What Your New Business or Side Hustle Means for You This Tax Season

Did you decide to finally branch out and start your own business like you always wanted to? Or maybe you wanted to earn a little extra money on the side so you started freelancing. While these situations may be common, talking about how these decisions now affect your taxes is not. Oftentimes, there’s so many moving parts to starting a business or side hustle that you probably aren’t thinking of the tax implications that come along with it, including a likely increase in taxes. If you have questions on how working as a freelancer will now affect your taxes, you’re not alone. To help clarify some common issues that will now be affecting you, let’s take a look at two examples. 

Example #1 John 

  • Photographer
  • Started his own photography business in 2019
  • Works full time 

Example #2 Sara

  • Graphic designer
  • Works full time as an employee at a retail company 
  • Does freelance graphic designing as a side hustle only on the weekends 

What Does Being “Self Employed” Mean?  

In the examples above we have John, who started his own business and Sara, who just does freelance graphic designing on the side for some extra cash and works full time with another company. Are both John and Sara self employed or just one? You might think because Sara is employed full time at another company she wouldn’t be considered self employed. However, even though Sara is an employee full time at another company, for tax purposes she would be considered self employed due to her freelance work. John is also self employed as he is the sole proprietor of his business. When you are self employed, it means you are now responsible for the self employment tax.  

What is the Self Employment Tax?

When you’re employed through a company, taxes are taken out for health insurance as well as Social Security and Medicare. Additionally, your employer will pay a part of the taxes so you do not have to pay the full amount. When you’re self employed, however, this isn’t the case. The Self-Employment Tax is the amount of money for Social Security and Medicare that you are now responsible for paying. Here’s the breakdown:

  • 12.4% for Social Security
  • 2.9% for Medicare

That’s an additional 15.3% that you are now being taxed. It’s important to be aware of this tax as when you are self employed, the amount you have to pay may catch you off guard. 

Which Forms Will I Use for Taxes Now?

Now that you’re self employed, gone are the days of the W-2. You’ll have to determine which tax forms to use depending on the type of business. For example, whether you’re self employed, a sole proprietor, or partners in a partnership will determine the various tax forms you’ll need to complete. Most small business owners use a Schedule C and file it with a Form 1040. Determining which type of business you have for tax purposes can be confusing, and it could be a good idea to consult with a tax expert to see what is right for your situation. 

Do I Still Get Tax Deductions for Being Self Employed?

Absolutely! One of the biggest tax deductions for being self employed are start up costs. Start up costs can include the money it costs for buying a new website, advertising fees as well as products that are required to help you with your business. For example, if Sara were to have bought software that would make it possible to do her graphic designing on her computer, this would be a start up cost that would be tax deductible. To make sure you’re figuring out all the tax deductions you are eligible for, it’s best to hire a professional tax preparer. 

Which Tax Forms Do I Need as a Freelancer?

If you are a freelancer you will likely be getting income from a number of different companies. In the past, you would have received a W-2, which included all your earnings from one company. As a freelancer, you’ll now have separate tax forms such as a 1099-MISC that you’ll use to keep track of all your earnings from different clients. Essentially, this form is used to report the total payments you received from a person or entity during the past year. 

Should I Consider Getting Help With My Taxes This Year? 

If you recently started your own business, there are a lot of things to consider with taxes. With all the paperwork and receipts that you’ll acquire, as well as handling potential losses, it can be tricky to keep track of everything. A tax preparer can help you to sort things out and make sure everything is filed properly. Perhaps most importantly, a tax preparer can assist you with finding all the tax deductions and write offs that are available to you. By hiring a professional, you’ll ensure that you’ll save the most amount of money possible. Let’s take a look at another quick example. 

Let’s say Sara made $6000 with her graphic designing side hustle and she isn’t sure what she’s qualified for when it comes to write offs, so she doesn’t claim any deductions. Her taxable income remains $6000 and her taxes she owes this year comes out to $1200. Now let’s say that Sara decided to hire a tax professional because she is newly self-employed and she doesn’t feel confident about doing her own taxes. Her tax professional finds that Sara qualifies for $5000 in write offs, which makes her taxable income only $1000 compared to $6000. Now, Sara’s taxes this year only comes out to $200 vs $1200. By hiring a tax professional, she’s now saved $1000 and gets to keep more of her money. 

Starting a business or freelance work can be an exciting time but it can be disheartening to see so much of your hard earned money going to taxes. Hiring a tax preparer is one of the best ways to ensure you’ll be saving the most amount of money possible. This year, hire a tax professional and see how much money you can save. 

Actions to Take 30 Days Before the Tax Deadline

Actions to Take 30 Days Before the Tax Deadline

With March upon us, the tax deadline is coming up fast. However, there are still things to be done as you prepare for the April 15th tax deadline. With 30 days until the deadline, here are some last minute tasks to add to your to-do list as Tax Day approaches. 

Getting in Last Minute Retirement Contributions 

One last minute way to boost your tax refund is by maxing out your IRA contributions. While most retirement account contributions are made by the end of the year, taxpayers can actually make additional contributions all the way until April 15, 2020. The basic limit for 401(k) contributions for the 2019 tax year is $19,000, with the exception of those who are at least age 50 who then get an additional $6,000. When contributing to all traditional and Roth IRAs, those 49 and younger cannot exceed $6,000 and those 50 and older cannot exceed $7,000. 

Amend Your Tax Return 

Sometimes, no matter how meticulous you are, you still might end up making a mistaking your tax returns. That’s where amends come in. There are a number of reasons why someone might need to amend their taxes. For example, it’s possible that your employer made a mistake on your W-2 and had to send you a corrected document or you forgot to claim income from a one-time side gig. One of the most common reasons people make amends to their taxes is because they’ve received a notice from the IRS saying they did not accurately submit information from their 1095-A, Health Care Statement when filing. If you need to make an amend to your tax return, don’t worry, it happens more often than you might think. Simply file Form 1040X, Amended Tax Return, along with the corrected information, or the additional documents you forgot to file with your return.

Filing Your Taxes

It may seem obvious, but if you still haven’t filed your taxes, with 45 days until the deadline, you should make this a priority. One of the best ways to prepare is to start gathering necessary documents. This includes dependent information such as their social security numbers or necessary childcare records and your own personal information including your spouse’s full name and social security number. Gather sources of income such as W-2 forms or 1099s, rental income, retirement income such as through an IRA, savings or dividends such as a health savings account, and forms itemizing other income such as gambling income or trusts. You’ll also want to gather forms and paperwork related to the deductions you may be qualified for such as owning a home, charitable donations, medical expenses, childcare expenses, and educational expenses to name a few. Even if you are hiring a professional tax preparer, gathering all forms ahead of time will help ensure your filing is completed by the deadline. 

Filing an Extension 

If you’re struggling to get everything done and ready to file by the April 15th deadline, you may want to consider filing for an extension. The process is straightforward and requires you to simply fill out IRS Form 4868 before the regular tax deadline. Once the IRS receives and accepts the extension request, you will have until October 6th to file your taxes. However, it’s important to note that the extension simply gives you more time to file, it does not give you more time to pay. Therefore, any balance that you might owe the IRS will still be due by the April 15th deadline. 

Start Prepping for the 2020 Tax Year 

When it comes to taxes, it’s never too early to start prepping for the next year. Not only does this include being more organized about recording your expenses or getting in contact with your employer about adjusting your withholdings, it also includes being smart about your refund. When you receive your refund, it might be your first instinct to finally buy that new gadget or product you’ve had your eye on. However, you might want to consider other options such as saving or investing your return so that you see greater gains. 

COVID19 Tax Update

COVID19 Tax Update

While this is usually Turbo Tax’s busiest week of the season, they may have noticed a decrease in submitted taxes this week. This is due to the fact that the Treasury and IRS, have extended the tax deadline by 90 days in response to the novel coronavirus. The new federal tax filing deadline for this year is now July 15th. While the extension may come as a reprieve for many, taxpayers who are ready to file and make their tax payment without straining their bank account are encouraged to file in order to get their refund as soon as possible. Well, here are some answers to some common questions you might have.  

Do I need to file an extension in order to take advantage of the new filing deadline? 

No, you do not have to file any extensions or take any action. The new filing deadline of July 15th automatically applies to all taxpayers. 

Is there also an extension of the tax payment deadline? 

Yes, the new tax payment deadline is also July 15th. You do not need to take any action for this either. This deferment of tax payments is interest fee and penalty free, simply pay by July 15th. 

Does this mean I have more time to contribute to my IRA? 

Yes, a bonus to the extended due date of taxes is also that you now have until July 15th to contribute to your IRA for 2019. 

Will this affect when I get my refund?

No, the Treasury Department will continue processing refunds as soon as your taxes are filed. You should receive your refund within the normal time frame (9 out of 10 refunds are received within 21 days when filed electronically). 

What do I do if I already filed my taxes and scheduled my payment for the April 15th deadline? 

If you’ve already filed and scheduled your payment, but want to take advantage of the new deadline, you’ll have to cancel your payment and reschedule it. In order for this to go into effect, changes to the payment needs to be made no later than 11:59 p.m. ET, two business days before the scheduled payment date. 

What if I need more time then the July 15th deadline to file or pay my taxes? 

If you need additional time to file, you will then need to request an extension using Form 4868. This extension will give you until October 15th to file your taxes. However, tax payments need to be made by July 15th. Payments that are made after the July 15th deadline are subject to interest and penalties. 

Does the deadline also apply to state taxes?

A majority of states in the country have also extended their due date to the federal July 15th tax deadline. However, some states have created different deadlines and guidelines. It’s important to determine what your state has decided so that you do not unintentionally accrue any penalties.

The CARES Act: Important Deductions

The CARES Act: Important Deductions

A $2.2 trillion, 300 page bill, the CARES act set records when it was signed into law in March 2020. But while most people were focused on the stimulus check, unemployment, PPP loans, and EIDL loans, the package also came with a significant amount of tax relief and tax deductions. Here’s what you need to know about how the CARES act might influence your taxes.

First: The Stimulus Check and Individual Tax Deductions

The stimulus check that was distributed in 2020 was actually a tax credit for 2020 taxes. This doesn’t effectively mean anything to most people; the only reason you would really need to know this is if you didn’t receive your stimulus. If you didn’t receive your stimulus in 2020 — and should have received it by all other requirements — you will be able to claim it when you go to file your 2020 taxes. A tax credit is not a tax deduction.

There are a few other minor changes for individuals: individuals taking a standard deduction in 2020 will be able to take an additional $300 in charitable giving, tax-deductible charitable contributions were raised from 50 percent to 100 percent of adjusted gross income, and the losses from pass-through entities can temporarily be applied to non-business income on an unlimited basis. 

But the rest of the deductions are for corporations.

Deferred Payments of Social Security Tax

For employers, the employer’s share of social security tax can now be deferred up to two years. Self-employment tax corresponding to this employer’s portion can also be deferred by up to two years. The only exception is if the PPP has been taken and forgiven during this time period.

The Refundable Employee Retention Tax Credit

Though this wasn’t discussed as often as the PPP, the employee retention tax credit can offer substantial bonuses to companies affected by COVID-19. The tax credit is equal to 50 percent of wages that were paid from March 13, 2020 to December 13, 2020, and for some it may actually be more than the PPP forgiven loan. The maximum credit is $5,000 per employee, and wages included health care. But it is not possible to get both the employee retention tax credit and the PPP.

Increased Tax Deductions for Net Operating Losses

Tax deductions for net operating losses were increased from 80 percent to 100 percent from 2018 to 2020. Further, the $500,000 limit on tax-deductible net operating losses have been suspended until 2021. Net operating losses can be carried back up to five years, so retroactive tax refunds may be in play. 

Increased the Limit for Tax Deductible Charitable Contributions for Corporations

Corporations usually have a limit on tax deductible charitable contributions of 10 percent, but the limit has been increased to 25 percent. Further, the limit of tax-deductible contributions of food inventory was increased from 15 percent to 25 percent of income. Both meant to encourage corporations to donate more, especially in food inventory that restaurants may have otherwise lost.

These deductions and credits need to be considered when businesses and individuals are planning their taxes for the next year. Businesses, in particular, may want to consult with a CPA regarding the changes that are being made and how it might influence them.