Appealing to the IRS

Many people think that the IRS is infallible and that they don’t have a say in anything the IRS does. However, that’s not entirely true. Sometimes, this organization, as giant as it may be, makes mistakes. When that happens, there is an IRS appeals process you can go through to hopefully make things right.  

What Can Be Appealed?

Many decisions and findings of the IRS can be appealed. For example, you can appeal the results of an examination or an adjustment. You may also be appeal to appeal any of the following:

·        Some penalties

·        Offers in compromise

·        Employment tax adjustments

·        Denials of abatement of interest

·        Liens

·        Terminations of/denials of installment agreements

·        Seizures

·        Collections due process notices

In cases where your decision was made via a direct meeting with an IRS employee, you can request a meeting with the employee’s supervisor. If you cannot reach an agreement with the supervisor, then you can go through an Appeals officer to request an Appeals conference, in which you’ll be able to support your position.

Going Through the Appeals Process

An Appeals conference can seem intimidating, but it’s actually fairly informal. It might be conducted in person, or sometimes it happens over the telephone or even through correspondence.

At this meeting, you can choose to go alone. Or, you can be represented by an attorney or an accountant.  

While you don’t have to have representation, it will definitely help you to feel more confident and in control, which is why it’s often a good idea to enlist qualified help.

If all goes well, the appeal will be decided in your favor. If that doesn’t happen, however, you may be able to file further appeals with the courts. How far you wish to take your appeal is up to you, though it’s always best to make your decisions about how to proceed with professional help and guidance.

Considering A Second Job? Consider Your Taxes

In this day and age, many people have to work more than one job to make ends meet. Sometimes, though, that second job may end up doing more harm than good, at least where your taxes are concerned. Thus, before you say yes to another job, consider the impact it might have on your taxes and whether or not it’s ultimately worth it.  

Will Your Tax Bracket Change?

One thing to think about is whether or not your second job will put you into a new tax bracket. This will depend on how much you earn at your current job and how much you will earn at the second job.

If you’re already close to the higher end of your current tax bracket, there’s a good chance you’ll get sent into a new one, which could mean being taxed at a higher rate. If that’s something you can manage, then go ahead and take that second job. If not, though, you may want to rethink it.

Will You Lose Out on Credits?

Many people receive special tax credits based on their incomes. One of the most popular is the Earned Income Credit. When considering a new job, think about whether the added income will make you ineligible for various benefits to which you’re currently entitled. If you’re losing out on a lot of benefits and not earning enough at the second job to cover the loss, a second job might not be right for you at this time.

Will You Stop Getting Tax Refunds?

Do you rely on your tax refund each year? If you’re like many people, that check makes a big and positive difference in your life. If it’s a difference that you can’t live without, consider whether or not you’re still likely to get a refund or as big of one if you take on a second job. While not getting a refund is not necessarily a dealbreaker for everyone, think about whether or not it is for you.

A second job is not always a bad thing, but it’s not always a good thing for everyone or for every situation. Thus, consider your own situation and how a second job will affect your taxes before you sign that work contract.

Filing Your Taxes at the Last Minute

Most of us know when the tax deadline is coming close. However, that doesn’t always stop us from filing at the last minute or, even worse, filing late. If you’re one of those “last minute” filers, no matter what the reason, there are some tips you can follow to get through the process as easily and as efficiently as possible.   

Consider E-Filing

One of the easiest and fastest options for getting your taxes taken care of is choosing to file online, a process known as e-filing.

E-filing is very easy and takes only a few minutes of your time. Plus, it even allows you to get your tax returns more quickly. There’s also the added benefit of not having to do the math yourself and not having to pay for postage or go to the post office.

If you want to get your taxes done with as little hassle as possible, choose a good online program and get to e-filing!

File Even if You Can’t Pay

Sometimes, people are tempted to put off filing until the last minute because they know they’ll owe money, money they don’t have. Some people will even avoid filing entirely.

Neither of these things are doing you any favors. Even if you don’t have the money, go ahead and file your taxes. You can also submit a partial payment to at least show the IRS you’re making an effort.

From there, you may be able to work out an installment agreement or other options to get your taxes paid. You’ll avoid late filing penalties and interest as well, which is why it’s always good to file on time.

The bottom line is that, whenever possible, you should try to file your taxes early on. That way, you’ll have plenty of time to check and double-check everything and to ensure you’re getting all available deductions and credits. If that’s not possible, then follow these tips to get through the process quickly and with less stress.

Understanding Penalties and Interest

Penalties and interest. Those are two words you don’t want to hear related to your taxes. Unfortunately, however, they are a reality for many taxpayers.

The first thing to understand is that penalties and interest do not apply in any tax year in which a taxpayer receives a refund. Instead, they apply to tax years in which the taxpayer owed money to the IRS.   

If this money is not paid by the due date, interest applies. How much interest will be charged will vary since this amount changes each quarter.

Penalties, on the other hand, generally stay the same. For example, there’s a late filing penalty, which is charged at 5% per month and can go up to 25% of the amount of the total tax due.

You will also face a penalty if you pay late. That penalty is half of a percent each month, up to 25% of the amount you owe.

When You Can’t File or Pay

Obviously, no one wants to face these extra expenses. That’s why it’s so important to file your taxes on time and to get them paid on time.

Sometimes, though, one or both of these things might not be possible. Maybe you couldn’t file due to a recent tragedy in your family or even a natural disaster. In cases like these, you may be able to get penalties waived by contacting the IRS.

For less serious matters that result in a failure to file or an inability to pay, you may be able to work out an offer in compromise or a payment plan with the IRS.

No matter what, it’s always good to keep in contact with the IRS and to show that you are willing to work with them and are doing your best. That can go a long way toward making things right and getting back on track with your taxes.

The Basics of CD Taxes

When you think of CDs, you probably think of those spinning little musical discs. However, there’s another kind of CD that’s big in the financial world. These CDs or certificates of deposit are a form of investment, and they’re incredibly safe. They’re protected by FDIC insurance or NCUSIF insurance. However, like most financial things, they are subject to various types of taxation.  

Interest Earnings Taxation

Unfortunately, when it comes to taxable accounts, you will have to pay taxes on any interest you earn from your CD. That interest qualifies as a special type of income known as “interest income.” That means that you have to report the funds when you file your taxes, and they will be taxed accordingly.

If you earn over $10 in interest from your CD, the IRS will send you a form 1099-INT where you will report the income. If you make less than that amount, you can report it yourself.

Retirement Accounts

The taxation rules are a little bit different when it comes to retirement accounts.

With traditional pretax accounts, you will not have to pay income tax on your interest right away. Usually, you’ll only pay taxes when you take funds out of the account for your own use.

Roth accounts are in their own category and often don’t require you to pay any interest-related taxes. However, you should always check with a tax professional to ensure you’re paying all of the taxes you owe and not accidentally missing out on any.

As you can see, the taxation rules regarding CDs are fairly straightforward. If you’re ever in doubt, though, just ask your financial adviser or even your financial institution for clarification. That way, you can enjoy the full benefits of a CD and not make any missteps along the way.

Native Americans and Taxes

When it comes to Native Americans, many people are confused on the laws as they relate to them and the taxes they must pay. While it’s been rumored that Native Americans are not required to pay taxes, that’s not actually true.   

Tribes, which are self-governing and independent, do not have to pay United States taxes. However, individual tribe members may be subject to taxation.

Federal Taxation

Native American tribe members are taxed at the federal level if they bring in taxable incomes.

However, they do not have to pay taxes on income that comes from government benefits. These benefits might include things like Welfare or Social Security income.

Sales Taxes

Sales taxes are a whole other matter entirely, one that often brings a lot of contention.

The rule is that tribes are able to impose their own sales taxes if they see fit, and their rules apply to anyone who wishes to buy or sell goods on their grounds.

Some tribes impose sales taxes while others do not, but many people and even state governments take issue with the fact that products are often much cheaper within tribe territories due to the lack of sales tax.

State Taxes

As discussed earlier, Native American tribes are not subject to taxation, including at the state level. However, individual tribe members may be.

The exception to the rule is that if the money is earned from their tribes, it is usually tax exempt, though some states, like California, have additional stipulations in place. In California, to be exempt from taxation, the person must reside on Native American land.

As you can see, issues related to Native Americans and taxation are a bit tricky. However, many of the laws that apply to Native Americans apply to all Americans, and contrary to what some people believe, these individuals really don’t get any special treatment from the US government.

What You Need to Know About Filing Taxes Late

Sometimes, those tax deadlines just have a way of sneaking up on you. When that happens, you may have no choice but to file your taxes late. While this is something you should try to avoid at all costs, it’s not the end of the world if you do file late. The most important thing is simply that you do file. However, when filing late, there are a few things you should be aware of.   

You Might Miss Out

Unfortunately, filing taxes late does sometimes have consequences, and one of those consequences is that you might miss out on refunds and tax credits.

If you’re due a withholding refund or a refund for estimated taxes paid, you are required to claim it within three years of the return due date. Once that time elapses, that refund or credit is gone, never to be seen again!

You Should File Even if You Can’t Pay

Sometimes, people file their taxes late on purpose. The most common reason for this is because they know they’ll owe money, and they can’t afford to pay it.

If you find yourself in this situation, go ahead and file. That way, you won’t owe taxes on top of a late filing and/or failure to file penalty.

Often, you can work out a payment plan or pursue other options with the IRS to pay your taxes.

Your Taxes Might Still Get Filed

If you make late filing or failing to file a habit, the IRS might just take matters into their own hands. In some cases, IRS employees will prepare returns for you, and these returns often don’t include deductions and credits which could help you to owe less. What’s more is you’ll typically have to pay penalties and interest as well.

As you can see, filing on time is always in your best interest. If you’re worried about meeting the deadline or have other questions related to filing, be sure to seek help from a qualified tax professional.

Common Myths About Sales Tax

Sales taxes can be a confusing thing. Everyone knows that they have to pay them, though few people are actually clear on the rules and laws surrounding them.

In fact, many people believe a lot of things about sales taxes that just aren’t true. Read through our list to make sure that you’re not falling for any of the commonly believed myths surrounding sales taxes.   

The Car Buying Myth

A lot of people have bought into (literally) the myth that, if they buy a car in a sales-tax free state and then take it back to their own state where taxes prevail, they can skip out on the sales tax.

While it would be nice if this myth was true, it’s not. There’s still a “use tax” involved, which is taxed at the same rate as the sales tax in the state in which you eventually register your vehicle.

So, if you’re thinking about taking a long trip to a tax-free state just to buy a car, skip it. You’ll end up paying either way.

The Nonprofit Myth

Many people wrongfully believe that nonprofit organizations are exempt from relevant sales taxes, but just like the car belief, this one is a myth too.

The confusion comes into play because nonprofits are often exempt from federal income taxes, but sales taxes are a whole other animal.

Nonprofits have to pay sales taxes on purchases they make, and they also have to charge sales taxes on items that they sell.

These are actually just two of many common myths about sales taxes. So, before you believe anything you’ve heard about sales taxes, especially if it relates to not having to pay them, check with a financial professional to find out the truth.

How to Pay Your Taxes

Finding out that you owe money to the IRS can be both intimidating and overwhelming. However, if it turns out that you have tax liability, don’t panic. You have many options for getting your taxes taken care of.   

Paying Online

One of the simplest options, one that many people prefer in this day and age, is paying their taxes online. If you go to the official IRS website, you will find many safe payment processor options that will allow you to either pay your tax debt in full or to pay whatever you can at the given moment. If you prefer, you can also call the official IRS number and make your payment with the help of a live IRS agent.

Checks or Money Orders

It is also acceptable to pay by check or money order if that’s what you prefer. Just make your payment out to the United States Treasury and then send it in, along with any helpful forms or copies of documentation that you might have.

Loans

Regardless of how you pay, you may find that you can’t pay all that you owe, at least not easily. If this is your situation, you may want to think about taking out a loan to make your tax payment.

Whether it’s borrowing money from family or friends, taking out a home equity loan, or even using your credit card, this is often a smart step since IRS interest often compounds daily, on top of late payment penalties.

Other options include requesting an extension or a payment arrangement with the IRS directly.

Unfortunately, taxes do have to be paid, one way or another. Work with the IRS and your financial advisor to find the payment options and schedule that work best for you and your situation.

Pension Withholding

A pension plan is a great option for retirees. However, in order to use it as effectively as possible, you’ll have to determine what you want to do about taxes. There are a few different options when it comes to pension taxation, and it’s important to choose the one that’s best for you. 

Withholding

One option that you have is to go ahead and have federal and state taxes withheld from your pension checks. This will reduce the amount of money that you receive each month, but, if you withhold enough, you won’t end up owning anything when tax time rolls around.

Not Withholding

If you’d prefer to see a larger pension check each month, then you can choose not to have any funds withheld from your pension check.

However, in most cases, this will cause you to underpay on your taxes, which may mean that you owe regular taxes in addition to an underpayment penalty from the IRS. Of course, there are ways to avoid the penalty, such as estimating your yearly income, including your pension check, and then setting your own tax withholding to match.

If you do go with this second option, your best bet is to carefully add up any and all sources of income, preferably with the help of a tax professional, and then to subtract any deductions for which you are eligible. From there, you’ll get your taxable income, which will help you to determine your tax bracket, which, in turn, can help you determine an estimated amount to withhold.

Whether you ultimately decide to go with withholding or not, you can always come out on top if you have the right help and guidance. For this reason, it’s always a good idea to have a financial professional advise you as you set up and deal with your pension plan.

Tips for Reducing Mutual Fund Taxes

Mutual funds are a great financial option for many people in a variety of situations. With that said, however, taxation does often apply to mutual funds, and it can sometimes be steep if you don’t know what you’re doing.   

The good news, however, is that, with the right professional help and the willingness to follow a few simple tips, you may be able to reduce how much you pay in taxes and maybe even increase your net investment returns.

Remember, Lump Sum Distributions are Rarely Your Friend

Sometimes, you may have the option of taking a lump sum distribution from your mutual fund. However, this will rarely work in your favor tax-wise.

Instead, you may be much better off accepting a rollover or small, spread-out distributions, depending on the type of mutual fund you have.

If you’re unsure of whether a lump sum is smart for you and your needs, of how to avoid one, or of other options that exist, talk with a financial professional before making any decisions.

Take Note of Capital Gains Distribution Estimates

All mutual funds, regardless of type, are required to distribute 95% of any net capital gains to shareholders.

While this is unavoidable, the good thing is that estimates are made available to you late in the tax year, typically around October.

The smart thing to do is to take notice of these estimates as soon as they are are available and then to make plans, preferably with a financial professional, about how you will handle them.

These are actually just a couple of many great tips and strategies that can be useful for reducing mutual fund taxes and/or their impact on you. However, what tips you should follow depend heavily on the exact details of your situation, which is why professional financial advising is always going to be your best choice.

Calculating Your Retirement Tax Rate

When the time finally comes for you to retire, it’s easy to feel like responsibility has left you. After all, you no longer have to show up for work every day, and you can often make your own schedule for the first time in years.

However, there is at least one responsibility that doesn’t go away, and that’s paying your taxes. Almost all people will have to pay taxes in retirement, which is why it’s important to understand and carefully plan for retirement tax rates.

Calculating Your Tax Rate

Retirement rates vary widely from one person and situation to the next, which is why it’s always a good idea to have some professional tax help where you can.

In general, your tax rate will depend on how much income, if any, you’re still bringing in and any deductions or exemptions that may apply.

Keep in mind that income does not always mean money that you bring in through traditional work but may include income you bring in via other means, such as retirement funds that are not exempt. If you’re unsure what counts as income, ask a professional tax advisor for help so that you don’t find yourself in trouble for not reporting income and/or paying required taxes.

When Your Tax Rate is Too High

Many people in retirement find that their tax rates are much too high for them to live comfortably and worry-free.

If this happens to you, don’t panic. Consult a tax professional to find exemptions, deductions, and other methods to lower your tax rates and to help you enjoy your retirement the way you should- free of excessive burdens and concerns. The goal is to leave that all behind when you retire, and the right tax help can often enable you to do just that.

Understanding Wage Withholdings

Wage withholding is a part of life for people who work.

This basically means that your employer subtracts taxes from what you earn and then sends that money to the government.

Generally, employers will withhold your federal income tax, Medicare tax, Social Security Tax, and any state and local taxes that exist. .

Sometimes, you may not pay enough in these taxes, which means you will owe money come tax time. Other times, you may overpay throughout the year, which means you get a refund.

In either case, understanding wage withholding will make it easier to deal with and to handle correctly.

How Employers Calculate Wage Withholding

One thing many people are confused about is how their employers determine how much of their wages to withhold.

In most cases, how much is withheld depends on how much gross income you earned less any pre tax deductions that have been paid out before taxation.

Withholding allowances, which you choose when you set up your tax forms, also come into play. For this reason, it is very important to choose your withholding allowances wisely and, ideally, with the help and guidance of a professional tax advisor.

Choosing the wrong withholding allowance could end with you paying too much or not enough in taxes, both of which are situations that you should strive to avoid.

State and Local Taxes Vary

In addition to wage withholding, other types of taxes exist as well. These include state and local taxes, which vary greatly depending on where you live and various other factors.

Generally, you can expect to pay for things like state income taxes, local taxes, disability insurance coverage, and more.

Your financial advisor can help you to understand these taxes, as well as how to minimize them via various legal methods, such as tax deductions.

In fact, a financial advisor is always your best bet for understanding your taxes and withholdings and, even better yet, reducing them when possible. For this reason, always seek professional tax help whenever possible.

Where NOT to Live if You Win the Lottery

Winning the lottery is something that most people dream about. What they don’t consider when they’re dreaming about their winnings, however, is having to pay taxes on all that “surprise income.”

Unfortunately, taxes are a real part of life…even for lottery winners. With that said, however, some states are worse than others when it comes to taxing lottery winnings. Hopefully, if you do win big, you’ll discover that you don’t live in one of these high tax states.

Where You Don’t Want to Live

If you win the lottery, you might not count yourself so lucky if you live in New York…or at least in certain parts of it.

You can expect to pay up to 8.82% of your winnings in taxes, as well as the almost 4% local tax if you live in New York City or Yonkers.

Other bad states to reside in for lottery winners include Oregon, with a 9.90% tax rate. Minnesota at 9.85%, and New Jersey at 8.97%.

If you do win in one of these states, there’s no sense moving. Instead, you should work with a qualified financial advisor to minimize taxes as much as possible.

You’ll Pay No Matter What

Even if you’re fortunate enough not to live in one of the states with high lottery taxation rates, you’ll still need to report and pay taxes on your winnings.

Lottery earnings count as just that- earnings or income. Thus, don’t be dishonest about what you’ve won, especially since it’s generally public record.

After all, as long as you have the right help, it’s not that hard to minimize taxes owed as much as possible. Plus, your winnings are unexpected income, so it’s smart to just be grateful for them…despite the associated taxes.

Property Tax Rates

Taxes are the worst. But, for the most part, they’re pretty much inescapable This includes property taxes. What you might not know, however, is that property taxes do vary from state to state, and some states are significantly more reasonable in this area than others.   

Understanding Property Taxes

First, it’s important to understand how property taxes work. Typically, they are a percentage of the property’s value. Thus, the more your property is worth, the more you’re likely to pay. However, each state’s individual property tax rate also comes into play.

The States with the Lowest Property Tax Rates

If you want to buy a high-value piece of property, your best bet is to buy it in one of these states, which boast the lowest property tax rates in the country:

l  Louisiana

l  New Mexico

l  Hawaii

l  Mississippi

l  Alabama

l  Arkansas

l  Delaware

l  South Carolina

l  District of Columbia

l  West Virginia

Out of all of these low-tax states, the best bet is Louisiana, which has the country’s lowest property tax at 0.18%. The highest tax rate in this list is owed to New Mexico, at a 0.55% rate.

The States with the Highest Property Tax Rates

If you’re not lucky enough to find property in one of the above states, do your best to avoid the states at the other end of the spectrum- the ones with the highest property tax rates.

These include:

l  New Jersey

l  North Dakota

l  New Hampshire

l  Vermont

l  Texas

l  Michigan

l  Nebraska

l  Connecticut

l  Wisconsin

l  Illinois

The worst in this bunch is New Jersey, with a 1.89% tax rate, while the “best” is North Dakota, at a 1.42% tax rate- still pretty high!

Ultimately, you probably cannot realistically base your decision about where to buy property based on tax rates. But, if you do have some leeway, it’s a good idea to go with states with lower rates when possible. If you can’t do that, then work with a tax advisor to find exemptions and helpful tips where you can so that, hopefully, you don’t end up totally drowning in property taxes.

What States Don't Have Income Tax

No one likes paying their income taxes. And, unfortunately, these taxes can feel like something that is impossible to escape. What you might not realize, however, is that you sometimes can escape this taxation…depending on where you live. Believe it or not, some states actually do not have an income tax. So, if you’re lucky enough to live in or move to one of them, you actually can get out of at least this type of taxation.  

Income Tax Free States

So, you’re probably wondering, what states allow you to freely get away without paying income tax?

The answer is:

l  Alaska

l  Wyoming

l  Florida

l  Washington

l  Nevada

l  Texas

l  South Dakota

Murky States

If you aren’t lucky enough to live in one of the states listed above, you might fall into one of the “murky area” states, which include both New Hampshire and Tennessee.

Both of these states do not require an income tax to be paid, but they do tax any interest or dividends you may receive.

Of course, everything isn’t all rosy. Tennessee does charge state and local sales tax rates that are much higher than average, while New Hampshire has really high property taxes.

Don’t Plan a Move Just Yet

Based on this information, you might be tempted to upend your life and move somewhere new, somewhere where you can escape income taxes.

However, rest assured that most states that don’t charge income taxes make up for it in other ways. Florida, for example, has very high property taxes and sales taxes.

So, if you don’t live in an income tax free state, just work with a financial professional to try and reduce the income taxes you do pay. Chances are, with the right help, you can end up legally paying a lot less than you do now.

Estate Taxes: How Do They Affact You

Sometimes, after a loved one dies, you may find that you are the person whom they have chosen to receive their estate. And, while finding out that you’ve inherited an estate can be flattering and exciting, keep in mind that taxation does apply.   

Federal Taxation

You may be able to skip out on federal taxation if the estate does not have a high value.

In general, federal taxes usually only apply if your estate’s value is over $11.4 million. The value over this amount is what is taxed. If you’re unsure about your estate’s value or if you need to pay taxes or how much, be sure to contact a financial professional for guidance.

State Taxation

When you inherit an estate of any value, you may have to pay state taxes. These taxes exist in thirteen different states. However, exemptions do apply based on the worth or value of your estate. The tricky thing, though, is that exemption amounts vary from state to state.

So, if you find that your state does have an estate tax, you’ll probably need some professional help to determine how much you owe.

If your estate has to pay anything to the state, deductions are allowed, which can help with any federal taxes that may apply. However, it’s still a good idea to seek professional tax help if you find yourself in this situation. That way, you can avoid errors and ensure you pay what you’re supposed to.

Being excited when you receive someone’s estate is normal. However, don’t get so excited that you neglect any tax responsibilities that may apply. In fact, as soon as you find out about your inheritance, the best course of action is always to consult a tax professional.

Illinois Taxes You May Not Know About

Every state has tax laws in place. However, Illinois is known for having some particularly high tax rates, which can be a bummer if you live there. Whether you like it or not, however, you have no control over the tax laws.   

What you can do, though, is to increase your knowledge about tax laws. That way, while you might not like the laws, you’ll at least be aware of them so they won’t come as an ugly surprise, and there definitely are some that you might not have known about.

Sales Tax

Most people do know that sales tax exists, though few are clear on exactly how much it is or what it applies to.

In Illinois, the sales tax rate is 6.25%. This doesn’t include any sales taxes that localities add, which can further increase taxes owed and varies from place to place. For that reason, educate yourself on the different tax rates in different areas of Illinois. That way, you can plan your shopping in a smart way.

Also, bear in mind that some items receive a lower tax rate of 1%. This typically includes items you need, such as prescription drugs, over the counter medicines, most food items, and medical equipment or supplies.

Soft Drink Tax

If you venture to the big city of Chicago, you’ll quickly learn that there’s a soft drink tax in effect. Retailers have to pay a 3% tax on their soft drink sales. And, if there’s a soda fountain in place, a 9% tax is applied.

So, what counts as a “soft drink?” The rule is any drink that is less than 50% juice falls into this category.

Gas Tax

Finally, take note of when and where you fill up your car.

Illinois boasts a 29 cents per gallon tax rate for unleaded gasoline. Diesel, on the other hand, has a 41.7 cents per gallon tax rate- still pretty steep!

Some counties, including Cook County and Chicago, charge up to six cents more than others, which can really add up over time. Thus, fuel with care and planning!

Taxes are no fun, but they are a part of life. Just educate yourself on what they apply to and where. Then, plan accordingly to avoid as much taxation as you possibly can…though, unfortunately, you’ll never escape it all.

Are You Financially Ready to Tie the Knot?

Getting married is exciting for everyone involved. However, it’s important to remember that marriage is about more than just romance. It’s also about combining finances and being, at least in part, financially responsible for another person.                        

For that reason, you shouldn’t get married until you are financially ready. What does that mean, exactly? Well while being “financially ready” is different for everyone, there are at least a few things all people should aim for before they say “I Do.”

Know How Each of You Spend

Before committing to marriage, make sure you have a good idea of how you spend and use money. You should also know the same thing about your spouse.

For example, do you like to save any extra cash you have for those “just in case” moments in life? Or, are you someone who saves for a big purchase and then starts all over again. Or, maybe you don’t save at all. You just spend your money as you get it.

Whatever the case, it’s important to know how you use money. Know the same thing about your spouse-to-be so that you can predict any potential problems or disagreements over money and come up with ways to combat them.

If you are aware of where you both “fall short” when it comes to money, you can meet any problems head-on and keep them from negatively affecting your marriage.

Create a Debt Reduction Plan

In addition to talking about spending and saving habits, also talk with your intended about the debt-related responsibilities each of you has.

For example, know how much credit card debt each person will bring into the marriage, if there’s any student loan debt, and that kind of thing.

Once you have determined how much debt will exist between you, come up with a plan for reducing that debt. You can do this on your own with some research, or, even better yet, you can hire a financial advisor to assist you.

Either way, if you can start your marriage off with a clear strategy for paying off debt, you’ll be starting on the right foot.

As you can see, there’s a lot to know about each other, moneywise, before jumping into marriage, as well as plenty to plan for. However, the most important thing is that both of you are open and honest with each other and continue to be so throughout your marriage. This can save you both a lot of grief and a lot of worry over money.

Converting to a Roth IRA

Many people who have traditional IRAs may, at some point, wish to make the switch to a Roth IRA. If you’re considering this decision, rest assured that making the switch really isn’t all that difficult and can sometimes be beneficial depending on your financial situation.  

Why Make the Switch?

First of all, you should know that traditional IRAs work great for many people. However, there are some instances in which you may wish to switch to a Roth IRA.   

Basically, if you are hoping to make more post-tax money, a Roth IRA is a solid choice. The reason for this is because when you switch, you lose the tax deferral that you get with a traditional IRA. While this situation is not ideal for all taxpayers, it can work in your favor, so check with your financial adviser to determine if this is a smart move for you.

Converting Funds

If you do ultimately decide that a Roth IRA is a better choice for you, let your bank know that you wish to make the switch. You don’t even have to change banks or change up your investments. You can simply designate that they go into a different type of account.

Actual conversion of the funds can be a bit trickier, but with the help of your bank and your financial advisor, you can make the switch work in your favor. If, for some reason, you can’t get the tax conversion to benefit you and it’s going to cost more than benefit you, then you may wish to rethink your decision, at least for the time being.

Converting your IRA is a bit complex, but, with good help, you can make the right decisions for you, your accounts, your financial state, and your future.

New Tax Fraud Laws and How They Affect You

In December of 2015, the Protecting Americans from Tax Hikes Act was passed. In order to further protect both tax filers and the IRS, the organization also enacted the Security Summit Initiative soon after. Since the passing of these new security measures, you may be wondering if and how they will affect you. Generally, they won’t unduly impact non-scammers, though they will still have some effect on all taxpayers.  

Tax Credit Effects

The main way in which this act will affect common taxpayers is by raising taxes and delaying money owed, all in an effort to recoup money lost to past scammers. This may not seem fair, but the federal government has to make up for the losses it has suffered due to fraud, showing that crime really does affect everyone in negative ways.

One way in which the government is recouping lost funds is by delaying some refundable tax credits, which include the Earned Income Tax credit and the Additional Child Tax Credit. So, while you can still get these credits if you’re truly entitled to them, it will take longer than usual since the IRS is being more dutiful about carefully checking them over to avoid sending refunds out to people who are attempting to cheat the system.

Individual Tax Payer Identification Number Effects

In the past, taxpayers who lacked a valid Social Security Number were able to apply for Individual Taxpayer Identification Numbers. And, while that policy is still in effect, the new Act requires that taxpayers must have used their numbers to file a return in the last three years. If they have not, that number is deemed invalid and must be renewed before a return can be filed.

Whether you have to renew your number or not, returns and refunds for people with Individual Taxpayer Identification Numbers will likely be delayed as the IRS checks over these numbers and related documents more carefully to try and avoid fraud.

These are just a few of many ways in which the IRS’ new security measures are impacting taxpayers. If you’re curious about how you will be affected, then talk it over with a qualified tax professional so you don’t get faced with any unwanted surprises.

Understanding the Different Types of Audit

Most taxpayers dread the very thought of having to undergo a tax audit. In fact, they dread it so much that they don’t even realize that all audits are not created equally. In actuality, however, there are many different types of audits. And, while, hopefully, you will never have go undergo any of them, it’s still important to understand the different types of audits and how to best handle them.  

Correspondence Audits

The most common type of audit is a simple correspondence audit. These are fairly stress-free since you handle them, at least if all goes well, via mail.

The IRS will simply request to see copies of your receipts and/or other documentation, which you mail in. After reviewing the documents, the IRS agent will either approve your return as is or make any necessary adjustments, along with penalties if they apply.

While undergoing a correspondence audit is not ideal, it’s usually pretty simple and straightforward and nothing to worry about as long as you have all of your documentation in order.

Office Audits

Office audits are very similar to correspondence audits. The only difference is that, instead of mailing in your documentation, you are asked to bring it to an IRS office in your area.

This can be a bit more nervewracking than a mail or correspondence audit, but it’s still manageable if you have your documentation together. You’ll also be glad to know that these audits are fairly uncommon, so it’s not likely you’ll have to go through this hassle.

Field Audits

Perhaps the most nervewracking and most serious kind of audit is when an IRS agent visits you in your home or office. You should still be prepared with documentation, but know that agents don’t typically pursue this type of audit unless serious discrepancies are suspected.

If you have been asked to have a field audit or, really, any type of audit, it’s always a good idea to work closely with your financial adviser to prepare and to reconcile any discrepancies or problems if they exist. Of course, if you work closely with a financial professional from the start, you can greatly reduce your risk of any type of audit happening in the first place!

When You Don't Collect Your Tax Refund

Most people are excited when they find out that they are eligible for a tax refund. However, there are also some cases in which people somehow never get notified of their refund or, for whatever reason, don’t receive it. If this ever happens to you, you may be wondering what your options are and whether or not you will ever see that refund to which you are entitled. However, take a deep breath and relax. Chances are, you can still collect on that refund you’re owed.  

The Three Year Rule

The good news is that the IRS gives you lots of leeway in terms of how long you have to receive your refund. In general, you have a whopping three years from the date of the original deadline of the tax return which warranted you a refund to collect that refund.

So, as long as the three year deadline hasn’t passed, you can still get your money. There are, however, a couple of exceptions to that rule.

To start with, you actually have seven years to claim a refund that resulted from deductions for bad debt or worthless securities. Plus, if you cannot manage your finances due to verifiable physical or mental ailments, the three year rule does not apply in your situation.

After Three Years

If you fail to claim your refund within the allowed three years and none of the above exceptions apply to your situation, then your refund will be termed an “excess collection,” meaning it can no longer be sent to you or applied to taxes you owe.

In effect, it basically goes away, as if it never existed.

To avoid having this happen to you, file your returns when you are supposed to, update all contact information as soon as possible, and always work closely with a qualified accountant and/or financial adviser.

How to Tell if that IRS Phone Call is a Scam

In recent years, most scammers have taken to the internet to try and separate innocent people from their money. However, that’s not to say that scammers don’t still use the phone to try and commit their heinous acts. Whether you have a cell phone or even an old school landline, be aware of the common warning signs that the “IRS phone call” you received might actually be from a scam artist.  

Immediate Payment

One of the first warning signs that you’ve got a scam artist on the line is if the caller demands that you pay your taxes right away. While the IRS does want the money you owe them, they don’t operate in this dangerous way. Instead, they have a collections process they go through.

First, they will send you a letter explaining what you owe and why. And, if you can’t pay that, they will often offer you reasonable options, like an installment agreement.

If a caller asks that you pay right away or face jail time or other scary penalties, there’s a good chance you’re dealing with a scam artist. Contact the actual IRS before you do anything else.

Requests for Sensitive Information

One thing a scammer does that the IRS will NEVER do is request highly sensitive information over the phone. If a caller asks for your credit card or debit card number, then rest assured that you’re not dealing with the IRS.

The IRS will never ask you for this type of sensitive information over the phone, so hang up and contact the real deal.

In fact, contacting the actual IRS or your accountant is always the best option when you’re unsure. If you can’t determine whether or not you’re dealing with a legitimate IRS agent on the phone, play it safe. After all, that’s always better than being sorry later on down the road!

When to Hire a Tax Accountant

Filing taxes is an inevitable part of life. And, while some people manage to file their taxes just fine all on their own, many people choose to let a professional tax accountant handle the job. While this choice is always a valid, smart one, there are some instances in which you absolutely should hire a professional instead of doing it yourself.  

When Time Matters

One of the main reasons to hire an accountant is when you simply do not have the time to handle your taxes on your own.

Filling out simple tax return forms may only take a few minutes of your time, but if you don’t have that time to spare, there is no shame and no harm in letting a professional take over. And, in the case of more complex taxes, which do require a large investment of time and attention, it can be helpful and often smart to let someone who knows what they’re doing handle the job.

When You’re Spending Too Much

Another good reason to hire an accountant is if you regularly owe too much in taxes, especially if it’s more than you can reasonably pay. When that happens often, there’s a good chance that you aren’t taking advantage of all available deductions and/or calculating your taxes correctly.

Of course, accountants charge their own fees too, so it’s a smart idea to see how much an accountant would cost you versus how much you’re spending and then to make an informed decision about whether or not hiring an accountant is worth it. In most cases, it is!

Accountants are not, contrary to popular belief, just something for rich people or for serious business owners. They can benefit almost every taxpayer who chooses to use them. Thus, consider your own financial situation carefully and then make a decision on whether or not it would be beneficial for you to hire an accountant to assist with your taxes.