First Time Taxes?

Applied knowledge is power, and familiarizing yourself with the tax system as a first-time tax filer can help in relieving the anxiety you might feel when preparing and filing.   

For many first-timers, the tax system and process seem like a dark and scary place.  So many forms and rules to execute and follow that it can be overwhelming.   The good news is that most of the time, newcomers have a relatively straightforward process.  Without dependents, claims, or other deductions, a simple 1040 form is used.  If you think you don't want to file, it's always a good thing to do so as you might be eligible for a tax refund.  Your employer is required to withhold taxes on wages that are earned in the local taxing jurisdiction and are directly remitted to the government.  If the employer withholds too much tax, a refund is issued, making it beneficial to file. Also, if you don't file and you meet the requirements for doing so, you're subject to failure-to-pay penalties.

Establishing whether the income you've earned is something you must report is an excellent first step. Based on criteria such as age and marital status will determine if your income is subject to filing.  All the particulars can be found on the 1040 Instructions 2019, which details the different filing statuses and the corresponding income parameters.  

Becoming familiar with the tax system will remove the scary mystique. It will also help you establish a file of organization so you can keep receipts and other deductions in order, so it's readily available on tax day!

The best news is that managing your taxes is not something you have to do alone.  The professionals at Lewis CPA, are on hand to assist in any and every way.

Gift Giving - The Tax in Giving

For most of us, the joy is in gift-giving; however,  when it comes to cash or estate gifts, there is such a thing called the 'gift tax,' and while complicated, there are several provisions, so you're able to avoid the tax altogether.  The way the gift tax works is essential in understanding how it can be avoided.

In life or death, any money that is transferred to someone else is subject to estate and gift-tax.  The government recognizes that accounting for every penny given, within a year, is unrealistic and established a $15,000 per person maximum gift amount without incurring taxes annually.  The key here is 'per person,' and if you're married, you and your spouse each qualify for and additional   So if you'd like, you could give a gift of $15,000 to each individual and then also provide a gift of $15,000 to the individuals as a couple totaling $60,000, all of which is exempt.  Some other gifts may not require taxation if over the maximum $15,000. Contributions to charity, tuition, and medical expenses may be tax-free, and when giving, be sure the gift goes directly to the institution in question.  Gits to your spouse, who is a U.S citizen, are also void of the tax.  Even if the gifts don't qualify for exemptions, you do receive a lifetime exemption from estate and gift tax to $11.58 million as of 2020.

$15,000.

The bottom line is your cash or estate gift giving would have to be a pretty substantial amount of money or property before having to pay up!   Lewis CPA can help you further if you need clarification or additional insight!

Tax Returns 2020

As we’ve said goodbye to 2019, we also get to say hello to a plethora of new tax laws that take effect in 2020.  As we move into this new decade, take stock, and see what the new rules are and how they'll affect you.

One of the most significant changes is simplifying our filing process for seniors.  Historically our 65+ have had to use multiple different forms and timeframes when filing.  With the introduction of the new 1040-SR form, which could be a fraternal twin to the 1040A, there's no limit on income. With many lines for different types of income, deductions, and credits, most seniors should be able to use the form, simplifying preparation. Timeframes will be 1,2 or 3, while 4,5 and 6 are eliminated.  Another change involves the W-4, where the allowance section goes away.  Probably wise to do a paycheck check to ensure your allowances are up-to-date, and if you're uncertain, you can always utilize the tax withholding estimator for guidance. 

Staying in the ‘saving’ lane, another significant change comes with bigger rewards on your tax return if you save for retirement.  The IRS has raised employee contribution limits for 401k, 403b, and 457 plans to $19,500; For our 50 and older an additional $6500.00, both seeing a $500.00 increase from 2019.

We mustn’t forget about inflation, and our tax laws haven’t.  Standard deductions rise for our singles to $12,400 and for couples to $24,800.  Also, the tax brackets expanded, reflecting a 2% increase.  Lastly, exemption from alternative minimum tax saw the effects of the inflation boost.  The key take-away is to ensure you're being impacted by inflation and not just pay increasingly year after year!

A few other changes essential to note; Alimony is no longer deductible by the payer, and the recipient will not include payments in income.  For all those virtual currency enthusiasts, it will now be recognized as property for tax purposes requiring the reporting of capital gain or loss. Speaking of alternatives, the plug-in electric drive motor vehicle credit takes effect.  Considering you have to pay a premium when purchasing one of these innovative, environmentally-friendly vehicles, the investment may provide a credit up to $7500.00

For all the up-to-date tax law information, don't hesitate to contact Lewis CPA your one-stop for all things tax-related!

Tax Laws - Pay to Save

If you're an owner or plan to purchase an electric vehicle or plug-in, the new tax laws around green vehicle technology have your interest peaked.

As states try to compensate for the lost revenue generated by the gas tax, new charges for these environmentally-friendly vehicles are increasing.  In 8 states, we will see higher registration fees, and in most U.S states, a special fee will be imposed on gas-free cars, trucks, and SUV's.  As the popularity around green technology increases, the need to update the infrastructure of the nation to accommodate these trendy cars is increasing.  

While plug-in hybrid and electric vehicle owners represent a small percentage of new vehicle sales in past years, in this new decade, the rate is expected to rise substantially. States are doing their best to figure out what's a reasonable fee, and that's no easy equation.  

Incentives to buy electric had been supported in many states and by the Federal government too.  Those tax credits are slowly being eliminated for some of the leading models, most notably made by Tesla and General Motors.  Not only are tax credits fading, but some states are also finding creative ways to enact fees that will help off-set the gas-tax loss.  In Illinois, for example, up until now, the license plate fee for buying electric was a mere $35 compared to the almost $100 cost for gas motorized vehicles.  This registration fee is increasing to $148 plus and a separate additional $100 fee in place of the gas-tax.  Other states are following suit.  In Alabama, a new $200 fee on electric vehicles and $100 fee on plug-in' will help update roads and bridges. At the same time, a smaller portion will go towards providing the necessary installation of charging stations to accommodate this newer technology. 

It may come as a bit of shock when seeing these increases in black and white; however, States are just attempting to figure it all out, and the impact of these hikes, in many cases, are lower than what you'd typically pay in fuel-taxes.

Some view these new tax laws as a way to discourage going electric, to plan for the future, we need to evolve from the taxes of the past.

Affordable Care Act - Affording the De-Funding

Repealing three of the taxes that have help fund the Affordable Care Act will cost our government more than lost coverage.

It's estimated that in the next decade, with the elimination of the Cadillac, health insurance, and medical device tax, the cost to the government will be close to $374.0 billion in lost revenue.  Removing the funding has many wondering how expanding health care coverage to all Americans is possible.  While it seems as though access to affordable health benefits is something most agree upon, paying for it is an entirely different dilemma.  

As the 2020 enrollment period ended, individual health care premiums were lower. Yet, the entire law is in jeopardy with no back-up in place, elevating anxiety, and confusion among those needing it most!

The good news is the ACA is still intact for now.  The marketplace that was created for individuals to shop for health plans is still up and running.   The political discord around the ACA had many thinking it was a thing of past and the fact that very little outreach took place during open enrollment to channel the uninsured to the website.

Another positive is that premiums are down nationally by 4% in what turns out to be a very stable health platform.  This does require some work in shopping around on site HealthCare.gov to find the best plan even if you're already enrolled.  Experts advise that regardless of whether you're new to the ACA or a 'veteran,' it pays in savings to shop!

The Affordable Care Act and how to fund it remains uncertain. Still, regardless of the changes that may be on the horizon, nothing drastic that will affect anybody will change overnight.

Up in Smoke - Illinois Tax

The new Illinois tax on legalized marijuana has devotee’s enthusiasm waning.

The long-awaited legalization of marijuana in the state of Illinois was met with both jubilation and judgment as Chicagoans got hit with the second-largest tax rate in the country.  In some cases, in Chicago, purchasers can see a 41% tax on marijuana products.  This, in addition to the 7% sales tax.

On Jan 1, as the lines wrapped around Chicago dispensaries, many were unaware that legal marijuana would run 30%-50% more expensive than what you'd pay on the black market.  The taxation is also dictated by how much THC is present, which is the chemical that produces psychological effects.  If the THC levels are above 35%, you'll be tax 25%.  Also, charges vary based on which composition you choose.  In flower form, you'll see a 10% tax and edibles, 20%.  

Many purchasers are asking why there are such steep weed taxes, and most are keeping their street dealers on call.  Much of the issue can be found in the speed at which legalized pot was rolled out.  While for the enthusiast, it seemed like a lifetime, without a fully developed medical marijuana market, recreational cannabis came too quickly.  While many states boast an extensive list of ailments warranting a medical card such as insomnia or anxiety, Illinois list was much shorter.  As pot legalized, the actual demand was felt as droves of user's both medical and recreational, visited their local dispensaries.  

While supply and demand continue to fuel retail prices, it does not influence Illinois tax on marijuana products.  Many predict wholesale costs coming down as supply needs are leveled off, which will help accommodate for the tax burden.

Anything But Secure - The Social Security Crisis

How ever you try to slice it, the current recipe for social security is a feast or famine proposition. Many factors have contributed to its shortfall.

In 1977 the social security wage cap was adjusted to cover 90% of earnings, and we haven't seen it modified since.  With all the lucrative technological and business advancements, providing huge earning potential for business founders and CEO’s alike, it gives one pause when you consider the impact of not accounting for the income growth in that time.  

One thing is clear; SocialSecurity Tax has not grown to account for the top 1 % income.  To assume these earners had their Social Security tax requirement paid in the first half-hour of 2020 isn't farfetched.  On the other end of the spectrum, only about 6% of all workers will reach the cap in 2019 of $137,700, leaving an estimated 94% of earners making less than the wage cap.  The effect of this leaves most Americans paying into Social Security at 12.4% per paycheck, all year long.  While the wealthy got wealthier, the average worker did not making things lopsided.

As our Baby Boomers age, those over 65 accounts for around 16% of the population.  The Boomers are the second most significant portion of the population behind their millennials.  With life expectancy increasing and birthrates falling, the mismatch between old and young has substantial impacts on our outdated tax equation.  We not only have a wage gap but an age gap too.

The insufficiency of our Social Security system and possible solutions can be found in several ways. Adjusting the wage gap to account for the increased life expectancy, low birthrates, and wage disparity would undoubtedly be an excellent place to start.

Standard Deduction: To Itemize or Not

Welcome to the new tax year, and with it, a new standard deduction!  For the 2020 tax year, you'll want to pay close attention to the standard deduction as the IRS has implemented an increase.  

A standard deduction is a way in which lawmakers have acknowledged the tedious, complicated, and often expensive process of figuring your tax savings.  The tax provision provides the freedom from having to keep track of all expenses throughout the year, and it's relatively big enough to make the standard deduction the best choice for most Americans.  While we haven't seen much of an increase in this benefit, 2020 will give people incremental savings based on filing status.  Single filing status deduction is $12,400, which is +200 from 2019.  If you're married filing jointly, you'll enjoy a +400 change from 2019 to $24,800.  Our Head of Household is a +300 at $18,650, and our married filing separately is $12,400, which is up +200.  Also, there are some extras in the standard deductions for some taxpayers.  If you're blind or 65+, you can add a $1300 bump to your withholding if you're single and a $1,650 if you're married.

In 2018 we saw tax reform and its effects on the standard deduction. With the significant increase, many Americans have chosen the standard deduction over itemizing their deductions.  Knowing all the eligible deductions you qualify for and keeping track of them is a time-consuming task, and even the most knowledgeable taxpayers miss opportunities to save.

Reducing your taxable income through the standard or itemized deductions can be a complicated equation to answer. Lewis CPA is a great resource to utilize in solving this and any other tax dilemma.

Charitable Contributions for the 2019 Tax Year

In recent years, there have been some changes made to tax laws, and it’s important to understand how these changes affect you.

One way in which the changes may have an impact is on any charitable donations you may have made in the 2019 tax year.   

Percentage Limit Increase

In years past, the percentage limit of cash contributions was 50% This year, however, it’s been raised to 60% of your adjusted gross income, so you can give even more and still deduct it!

Personal Seat Rights

It used to be that you could claim 80% of the cost of personal seats rights for college sports as a tax deduction. Unfortunately, that’s no longer allowed. Not only can you not deduct 80%, but you can’t deduct anything at all. Sorry, sports fans!

Give with Caution

In addition to being aware of recent tax changes, make sure you are careful about where you donate your time and money.

The IRS will only allow you to deduct donations to qualified organizations. Plus, you don’t want to get scammed by a non-reputable organization.

Generally, a qualified organization must be a nonprofit group and meet certain other standards. 

Fortunately, the IRS maintains a list of qualified organizations, which you can and should check before you donate.

Consider the Standard Deduction

Finally, before you take advantage of deductions for charitable contributions, make sure you wouldn’t be better off taking the standard deduction.

For some people, this will be the smarter financial choice. If you’re not sure what applies in your situation, just check with a tax professional or simply do the math to determine which one makes more financial sense.

Remember, it’s always nice to give and to help others. Just make sure you take the new tax laws into consideration, as well as what’s best for you.

Are You Entitled to Natural Disaster Relief?

Sadly, many people suffer loss due to natural disasters each year. And, while this is definitely not something anyone wants to endure, there is an upside. The IRS often offers relief, such as extended tax deadlines, for those who suffered due to a federal disaster.

Are You Eligible?

Knowing whether or not you are entitled to disaster relief can be tricky. If you’re ever unsure, you should always consult with a tax professional. In general, though, you’ll qualify if you have a principle residence or business location in a county that has been designated a federal disaster area.

You can also qualify for relief if you can’t access your home or business records or estate or trust information due to it being located in a disaster area.

Finally, you’ll likely be eligible if you are a relief worker in a disaster area or the spouse of a taxpayer affected in any of these ways and planning to file jointly.

Casualty Losses

While different types of disaster relief are available, one of the most common and helpful is to claim a casualty loss.

If your property was damaged or destroyed due to a natural disaster, you can itemize your deductions and claim a deduction for related costs. Generally, you cannot deduct the first $100 of loss or damages, but you can deduct anything left over to the extent it exceeds 10% of your adjusted gross income.

Tax Return Copies

Sometimes, a natural disaster can cause you to lose or lose access to previous tax returns. Thankfully, the IRS will typically not charge you and will even expedite your request for copies of these documents if you’re in a federal disaster area or have lost access to information that was stored in one of these areas. Just be sure to designate your disaster area in red ink at the top of your appropriate request form.

The IRS may be able to help in other ways as well if you’re a disaster victim. To learn about other options for relief, speak with a tax professional.

Tax Deduction You May Not Know About

While a lot of things are taxed in this world, there are also many things that count as tax deductions. And, obviously, you want to take advantage of as many things in this second category as possible. That’s why you should educate yourself on even the most obscure or lesser-known deductions. If you do, then you’re a lot less likely to miss out on savings!

Sales Tax

Almost everyone pays sales tax, but not everyone knows that you can deduct the sales tax you pay from your federal income tax.

To do this, you’ll need to itemize your deductions.   

However, keep in mind that deducting sales tax only works well in certain situations, so only take advantage of this option if it’s going to benefit you more than other choices, such as taking the standard deduction.

Teacher Supplies

If you teach anything from kindergarten to twelfth grade, chances are that you often dip into your own pocket to buy classroom supplies. Luckily for you, you can deduct up to $250 for classroom-related expenses.

Childcare Fees while Volunteering

If you’re trying to do your part by volunteering but it requires you to hire a babysitter, guess what? You can deduct those child care costs from your taxes as a charitable contribution. This only counts for childcare when you’re actually volunteering though, so you can’t have a date night and deduct the costs.

Social Security for the Self-Employed

If you’re self-employed, you’ll need to pay 15.3% of your income into Social Security and Medicare. However, you can at least deduct the employer portion from your taxes, which saves you a little bit. And, really, every little bit counts when you’re saving money!

Believe it or not, these are just a few of many possible deductions. Be sure to do your research and make the most of every single deduction you’re eligible for. These deductions can really add up come tax time.

Financial Success Starts with Realistic Goals

The New Year is here, and, if you’re like most people, you’re probably going to set a resolution or two. Maybe one of those resolutions will be to improve your financial situation.

If that’s the case, know that you don’t have to make some huge, unattainable goal, like saving thousands of dollars in a short time period. In fact, you shouldn’t set very difficult goals. Instead, you should set reasonable, realistic goals that you can build from.  

Following a few basic tips can help you with goal-setting and with reaching those goals too!

Avoid the Comparison Trap

First things first, let go of any ideas about where you “should” be in life or how much you “should” have. People often look at others their age, their accomplishments, and their incomes and feel bad if they don’t measure up.

Your goal shouldn’t be to reach someone else’s idea of success. Stop comparing your situation to others, and just work with what you have. If your first financial goal is something small, like saving for a car or just building an emergency fund, that’s fine.  You have to do what’s right for you and you alone, and comparing yourself to others is discouraging, which can cause you to give up before you even get started.

 Put Emergency Funds First

As mentioned briefly above, a small but important financial goal is to have an emergency fund. In fact, if you don’t have an emergency fund, that should be your very first financial goal. This fund can carry you through tough times or when life throws you unwelcome surprises.

Set a goal of saving enough money so that you could live comfortably for one month if you suddenly lost your income source. Once you have that saved, aimed for two months’ worth of savings and then three- the amount generally recommended by financial experts.

Building this level of savings can take work, but it’s worth it for the security and peace of mind you’ll have.

Once you reach one goal, it’s even easier to set and reach another. Work at your own pace and celebrate your success. Before you know it, you’ll be further along than you ever thought possible!

Don't Forget about these Tax Deductions

Everyone wants to pay less in taxes and/or to get more from their tax refunds. And, fortunately, tax deductions provide an easy way to do that.

Unfortunately, though, there are many tax deductions that commonly get overlooked. Below, you’ll find a few commonly forgotten tax deductions, and, if any of them apply to you, make sure you take notice and take advantage of them!   

Educational Deductions

If you’re planning on going back to school or attended college in the past, make sure you take full advantage of all available education credits.

Two big ones that people often overlook are the American Opportunity Tax Credit and the Lifetime Learning Credit.

With the first one, you can enjoy up to $2,500 simply by having paid money for your first four years of college. With the second, you can enjoy $2,000 to help with tuition and fees for many types of education, even those that don’t culminate in a degree.

Health Insurance Deductions

Everyone needs health insurance, and making sure you have it can result in a tax deduction.

Self-employed individuals can take a deduction for their premiums, as well as any premiums they paid for family members. Traditionally-employed individuals can itemize their deductions to deduct premiums paid after taxes.

Donation Deductions

If you have a giving heart, then you might have made a donation or two throughout the tax year. If so, there’s a good chance you can deduct what you gave, providing you gave to a reputable, charitable organization.

If you prefer to give by volunteering, you can deduct travel and parking related expenses that you incurred by volunteering.

These are just a few of many deductions available. To make sure you don’t miss out on great tax savings, always work with a tax professional. They’ll be able to spot any deductions you might have missed and ensure you get any deductions for which you are eligible.

Do Americans Cheat on their Taxes?

The image of the cheating businessman or the dishonest accountant is regularly seen in popular culture. Believe it or not, however, studies indicate that most Americans are actually quite honest when it comes to paying their income taxes. An, surprisingly, the rate of cheating is quite low, especially compared to other countries.

Some might argue that Americans don’t cheat only out of a fear of consequences or of being found out via an audit. However, audit rates are much lower than in recent years. Plus, the likelihood of serious consequences, like jail time, is low for the average taxpayer even if caught.  

So, perhaps it’s something more than fear that spurs Americans to honesty. Perhaps it’s a sense of obligation. A recent survey by the IRS itself actually found that 88% of Americans felt it was unethical and not at all acceptable to cheat on taxes. Even outside of IRS surveys, America has a voluntary compliance rate of income tax filing that ranges from around 81 to 84% on average, which is pretty impressive!

America’s voluntary compliance rates actually prove higher than those of Germany, Italy, and many other countries. So, there really must be something to the whole “American integrity” idea.

On a personal level, no matter how you feel about taxes and their ethical implications, bear in mind that it’s always in your best interest to stay on the side of the law. Not paying taxes or cheating on taxes could cause you to end up owing more and to face some severe fines and penalties. So, put aside any personal feelings or opinions about taxation you may have, and just do the right thing. It appears that most of America will be doing the same.

Saving For Retirement as a Gig Worker

In today’s world, it’s not at all uncommon for people to be “gig workers,” which means they work for themselves or as independent contractors. If you fall into this category, you may be wondering how to save for retirement and if it’s even a possibility for you.

The answer is that you absolutely should save, not only for your future but to help benefit your current tax situation as well. And, fortunately, there are some easy ways that you can start saving now.

An IRA

One simple option to save for retirement is to open up an IRA, which will allow you to contribute up to $6,000 (or $7,000 if you’re 50 or older) for tax year 2019.   

If you opt for a traditional IRA, you can deduct your contribution amount if you have enough earned income to cover it and if you meet required income thresholds.

Should you choose a Roth IRA, your contributions won’t be tax deductible, but your disbursements after you reach 59 and a half aren’t taxed. However, make sure you don’t exceed the allowed income limits, or you won’t be able to contribute to a Roth IRA.

Since the rules about Roth IRAs can be a bit tricky, it’s probably best to talk with a financial advisor if you’re considering this savings option.

A Solo 401(k)

Many traditional workers can benefit from a 401(k) plan offered by their employer. If you’re not traditionally employed, however, and are just a gig worker, you can still set up a 401(k) for yourself, known as a Solo 401(k).

With a Solo plan, you’ll be able to contribute up to $19,000 or $25,000 if you’re 50 or older in tax year 2019. And, since you’re both employer and employee in this arrangement, you can contribute not only your income but also up to 25% of that income amount as an employer contribution.

As you can see, gig workers, just like traditional workers, do have options for saving for retirement. These are just a few of many, so find what works for you and then take full advantage of it.

Saving on Taxes When You Have a Family

Having children and a family of your own is a wonderful thing. In fact, it’s what many people dream of. However, like everything in life, it comes with expenses and taxation.  

The good news is that there are many tax breaks and deductions available to parents and parents-to-be. And, if you take advantage of all the savings available to you, you can enjoy your family and your kids even more.

The Dependent Care Plan

Your employer likely offers a dependent care plan. If so, be sure to put money into this plan. It will be tax-free! And, though it may reduce the amount you get for your child and dependent care credit, it can still help you to save in the long run.

Joint Filing

When possible, always try to file your taxes jointly. If you and your spouse file separately, you’ll miss out on deductions and credits.

In fact, the only time you should file separately from a spouse is if you’re soon to be divorced or if the spouse has serious financial problems and you don’t want them to affect you.

The Child Tax Credit

Make sure you always claim the Child Tax Credit on your taxes if you are eligible for it. This $2000 credit can be claimed for every dependent child who is under 17, which can really add up. Married couples who make up to $400,000 and single parents who make up to $200,000 are typically eligible.

As you can see, there are many ways to save without foregoing having children. In fact, when it comes to taxes, having little ones can actually save you some money. Just make sure you carefully research tax savings available to you and then take full advantage of every deduction and credit you can.

Tax Refund 101

Are you in need of a tax refund?  What if I told you that you could control your refund probability? 

We often forget our controllables that can make that refund check a reality.  Although they take a little extra time and may affect modern comforts a bit, it may be well worth it if you get that IRS check.

A quick and relatively painless way to impact your refund potential would be lowering your W-4 withholdings. This will increase your income tax, and while your immediate take-home pays maybe less, you can avoid payout and could get a refund windfall the following tax season.  

Another way to maximize your deductions takes a little bit of organization. It's as easy as labeling a folder 'tax deductions' and placing anything that's tax-deductible throughout the year in this file.  As you begin to plan and prepare, you’ll utilize this folder as it will now contain all sorts of deduction paperwork.  If you find you’re better virtually, Turbo Tax has various software programs such as Quick Books that can help and are also great if you’re self-employed as it keeps track of business expenses and income.

Saving, expanding your education and donations of household goods, have tax benefits too, and are worthwhile avenues to explore.  Saver's Credit is a credit for lower to middle-income taxpayers, and there is the Simplified Employee Pension IRA for those that are self-employed.  Being 50 provides benefits too. You’re able to increase your contributions to your retirement account up to 25,000. For those wanting to learn a new career with a moderate income, the Lifetime Learning Credit is a significant tax credit on tuition expenses.

If this all stills seems too complicated, leave the tax refund rules to the experts as there is software such as TurboTax It’s Deductible, that tracks all of it for you making taxing times, not so taxing!

How Do the Super Rich dodge Taxes

Some people in the world are very rich, so rich that they’re often called or referred to as the “super-rich.” And, while you might think that these individuals pay a ton in taxes, that’s not always true.

Many of these super-rich people know how to use the tax law and its loopholes to their advantage. Thus, they sometimes end up paying nothing or close to nothing in taxes. Believe it or not, there are more ways to achieve this goal than you might think.   

Trust Freezing

Sometimes, the super-rich will engage in trust freezing, which is transferring their assets to an heir while avoiding taxation in the process.

They often accomplish this by trading common stock for preferred stock and then living off the dividends.

Overseas Accounts

It’s also very common for rich individuals to have bank accounts in other countries. Conveniently, these will often be countries with very low taxation rates, which means their money ends up being taxed less, and they end up keeping more of their cash.

Shell Companies

Some people even create “shell companies,” which are companies that aren’t real, except for on paper. They use these ‘companies” to funnel money and dodge taxes. And, since the company legally exists, they often don’t end up getting into trouble for this loophole.

Whether or not you agree with these methods so common among the rich, there is one takeaway: you can use the tax law to your advantage if you know what you’re doing. And, best of all, you don’t have to be super rich to do this. You simply need the help of someone who knows the tax laws inside and out and who can help you navigate the complicated tax laws to your advantage.

What is the Gift Tax?

Did you know that, in some cases, if you receive a gift, taxes may have to be paid on that gift?

There exists a tax in America known as the “gift tax,” and it’s a tax assessed on the value of a gift given from one person to another. Of course, if the gift comes from your spouse and your spouse is a citizen, the gift is exempt from taxation. But, in other cases, gifts and their value may be taxed. 

Determining if a Gift is Taxable

Usually, the type of gifts that are taxed are things like jewelry, property, or stocks.

You can determine if a gift tax applies by considering whether or not the gift recipient pays for the full fair market value of the property. If not, a gift tax will apply.

Likewise, think about whether or not the gift giver will one day get the property back. If the answer is no, the gift tax applies.

Who Pays?

If a gift is indeed taxable, you may be wondering who has to pay up when it comes to the tax.

The answer is the person giving the gift. The giver has to pay the tax, report the gift to the IRS via a special gift tax return form, and also file and pay state taxes if required.

The recipient may have to pay capital gains tax if they sell the property they’re gifted. But, other than that, they just get to enjoy their gift without any worries or obligations, proving it’s a lot nicer to be on the receiving end of this transaction.

If you’re thinking about giving a gift or accepting one and you have questions related to the gift tax and how it may affect you, remember that you can always seek advice from a financial professional.

Missed the Tax Deadline - Now What?

Sometimes, people need more time to file their taxes. And, luckily for them, there’s an extended tax deadline offered.

What happens, though, if you also miss that deadline? Well, thankfully, you’re not totally out of luck, at least not if you take the right steps.   

Go Ahead and File

When you miss the extended tax deadline, you might think that you’re not allowed to file or that you shouldn’t bother. However, that’s not the case. You should still go ahead and file your taxes as soon as you possibly can. Since the IRS’ E-File service will be closed, you’ll have to print out and mail in your tax returns instead.

Will You Owe a Penalty?

Once you file, if the IRS owes you money- a refund- then you won’t have to worry about being charged a penalty.

This will only come into play if you owe money to the IRS. In that case, you may be charged a failure to file penalty, a failure to pay penalty, and/or interest.

What about Hardships?

In some cases, the reasons that people miss filing deadlines are understandable or out of their control. If this describes your situation and you can prove it to the IRS, you may be able to escape some or all of these penalties.

This is especially true if you were a victim of a federally-declared natural disaster, in which case an exemption may already be built-in for you.

No matter what, the worst thing you can do is to ignore the situation. It won’t go away, and, in fact, it’s likely to get worse if you don’t take action. File your taxes and, if you think you’ll be charged a penalty, contact a tax professional to learn more about your options.

Understanding Amazon's Tax Situation

Recently, it was reported that the giant corporation, Amazon, was likely to pay no or very little taxes for tax year 2018. When people heard this news, they were upset and confused. After all, Amazon brings in huge U.S. profits. It seems like the company would have to pay taxes.

However, the company is smart and knows how to play its cards right, at least as far as its bottom line is concerned. By taking careful advantage of various tax rules, deductions, and more, they have legally enabled themselves to pay well below the standard corporate tax rate for several years now.

While some people think Amazon is absolutely brilliant for its clever manipulation of the rules, others feel the company’s maneuvers are unfair or unethical. However, the company has operated within the bounds of tax law, which leads some to look at Amazon’s tax status as merely a symptom of a bigger problem- a failed tax system full of loopholes. Of course, there are still others who think that Amazon’s situation is proof of a working tax system that helps companies to invest in their own interests and grow the economy in the process.

Whatever your take on the issue and what it says about our country may be, at least consider this: we can all learn a lot from Amazon as individual and/or business taxpayers. If Amazon teaches us anything, it’s that we can work the tax law to our advantage in powerful ways, all without getting ourselves in trouble or doing anything illegal.

To start working the tax laws to your advantage, however, you first have to know what they are. That’s where doing your own research and hiring the right professional tax help comes into play. Do those things, and you, like Amazon, could find yourself paying a lot less in taxes than you ever imagined.

How to Claim a Refund of Social Security and Medicare Taxes

Sometimes, people find that they have accidentally paid too much into the Federal Insurance Contributions Act. This might be through fault or a misunderstanding on their own end or on the end of their employer. In either case, if this ever happens to you, know that you can claim a refund of the money you’re owed.

Getting Your Refund

The first step, after ensuring you’re eligible for a refund, is to fill out IRS Form 843, which is the Claim for a Refund and Request for Reimbursement Form. When possible, when you send in this form, include a letter from your employer that clarifies whether or not you have been reimbursed anything by your employer and, if so, how much.   

For further verification, include a copy of your W-2 for the tax year in which you are requesting the refund. From there, submit your paperwork to the IRS, preferably via the office where the employer in question files 941 forms since this will expedite the process.

In some cases, you may be asked to provide further documentation or fill out other forms depending on the exact circumstances of your reimbursement request. Just be patient and willing to work with the IRS as needed.

Act Quickly

As a final piece of advice, remember that the IRS does have a statute of limitations on these refunds. Usually, they expire after three years from the date they were owed. For this reason, it’s in your best interest to act quickly and to file for a refund as soon as you realize that you may be entitled to one.

If you have questions along the way or need help filling out the required forms, just contact a tax professional for assistance.

Tax Tips for the Self Employed

Being self-employed has a lot of great benefits. One drawback, however, is the fact that taxes can be a bit complicated for the self-employed. In many cases, these individuals even have to pay a special self-employment tax.     

Even though taxes can be a burden, know that, with the right help, you can more fully understand the taxation process for the self-employed. And, the more fully you understand it, the more likely it is you’ll be able to work it to your advantage.

To take a step in the right direction, tax-wise, start by following these simple tips.

Estimate Your Income Each Year

First things first, make sure you estimate your business income each and every year.

Having an accurate idea of about how much you can expect to earn will help you to make the most beneficial tax-related decisions all year long, such as knowing which exemptions to file for.

Furthermore, when you estimate your income, you can also estimate your taxes, which gives you time to save what you’ll owe.

While you can estimate your income on your own, it’s better to do so with the help of a tax professional who can also provide advice and tax strategies to consider during the year.

Invest in Personal Finance Software

When you’re self-employed, it’s imperative that you keep detailed and accurate financial records related to your business. This will help you with your taxes, but will also be vital in the event that you are ever audited.

To make recordkeeping easier, invest in quality personal finance software, preferably the kind that can be synced to your bank account. This software, if used properly, will make tax-time so much easier and less stressful.

Choose Business Deductions when Possible

Finally, whenever you have the choice between making something an itemized deduction or a business expense, always go for the latter. Businesses expenses allow you to reduce your income and your self-employment tax, making them the smarter option in almost every circumstance.

Following these simple tips should get you off on the right foot. Really, though, it’s best to work closely with a tax professional and educate yourself as much as possible so that you can make it through self-employment taxation with ease and confidence.

How to Get an Automatic Tax Extension

Sometimes, people run into unique or challenging situations in life. And, sometimes, these situations make it so that they’re unable to file their tax returns on the due date.

If this ever happens to you, try not to panic. You may actually qualify for an automatic six month extension, providing you with extra time to file.

Even better yet, there are multiple ways to go about getting this extension, and they’re all fairly simple.

E-Filing

One of the easiest ways to get an extension is to e-file Form 4868, which is the Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.  

You can file this form online with or without the help of a professional. Just be sure to fill out part II of the form if you think you will owe taxes.

Traditional Filing

If you’d rather request an extension the old-fashioned way, simply fill out Form 4868 on paper. Then, mail it to the IRS as instructed. If desired, you can make a payment of some or all of your estimated taxes and include it with the form, being sure to provide identifying information and what the payment is for.

Making a Payment

If you’d prefer not to fill out a form, simply estimate your taxes owed and make a full or partial payment to the IRS by phone or online. Doing so will qualify you for an automatic extension without you having to fill out Form 4868.

It’s always best to file your taxes on time to avoid penalties and interest. When that’s not possible, however, simply request an extension in whatever way works for you. That way, you’ll have more time to file and to get your taxes all taken care of.

Do You have to Report the Sale of a Foreign Home?

Many Americans own property overseas. Sometimes, this property acts as a second home. Other times, it’s just a temporary home before returning to the United States.  

Whatever the case may be, if you ever sell this property, you may wonder whether or not you’re required to report the sale. The short answer is that yes, you are. If you’re an American citizen, all of your income is taxed, even if you earn it overseas. However, there are a few special exceptions to be aware of.   

Was The Property Your Principal Residence?

The first thing to determine is whether or not the property was your principal residence. In other words, did you live in and own the home for at least 24 out of the past 60 months?

If the answer to that question is yes, then you can exclude $250,000 of capital gains from the sale of the home. This exclusion is even higher for married couples filing jointly, who can exclude up to $500,000 of capital gains.

What Happens When You Go Over the Exclusion?

If you earn more on the sale of a primary residence property than the exclusion allowed, that extra money will be taxed as a long-term or short-term capital gain. You’ll only qualify for the long-term category if you owned the property for more than a year, in which case your profits will be taxed at a lower rate.

Understanding how to handle your taxes after selling your home, especially when the selling takes place overseas, can be confusing. If you run into any problems along the way or need some help or clarification, be sure to contact a qualified tax professional for advice on how best to proceed.

Qualifying for a Guaranteed Installment Agreement from the IRS

Sometimes, people get hit with tax bills that they cannot pay all at once. If that ever happens to you, don’t panic. Instead, reach out to the IRS and ask about an installment agreement, which will give you more time to pay your taxes.   

Of course, with an installment agreement, you will have to pay penalties and interest, which means that your tax bill will ultimately be higher. So, don’t use this resource unless you absolutely have to.

If you do ultimately need a payment arrangement, however, make sure you choose the right type for your needs, as well as a type for which you are eligible.

One common type of installment agreement is the guaranteed installment agreement, though not everyone will be eligible for this option.

Eligibility Requirements

The guaranteed installment agreement is a great option for taxpayers. Under this arrangement, they will not have to worry about a federal lien being filed against them.

In order to qualify for this agreement, you have to owe less than $10,000, excluding interest and penalties.

You also must not have had an IRS installment agreement of any kind in the last five years, and you must have filed and paid your taxes on time in all of those years.

If you meet these basic requirements, can pay at least the minimum monthly payment required, and can pay your debt within the next three years, you should have no problem getting a guaranteed installment agreement.

The Value of Professional Advice

If you’re fortunate enough to qualify for a guaranteed installment agreement or some other type of arrangement, work hard to avoid finding yourself in this situation in the future.

Talk to a professional tax advisor about ways to possibly lower your taxes and what you can do to make paying your taxes on time easier and more possible.

Getting and staying on track with the IRS will ultimately make your life a whole lot easier.

Why You Need to Hire an Accountant

These days, most people are content to do their taxes via an app, software, or a website. And, while there’s nothing wrong with that, hiring a professional accountant can be very helpful, especially when you have specialized tax needs or need to be on the lookout for tax breaks.

No matter what your situation, at least consider hiring a real accountant come tax time. Doing so will mean a lot of great benefits that you wouldn’t get otherwise.   

Get Your Taxes Done Right

When an accountant handles your taxes, your tax forms are a lot less likely to include mistakes and errors.

Errors on your tax form, even small ones, can make your tax return more susceptible to being audited. Furthermore, errors often mean delays in processing your refund.

So, if you want to avoid problems and get your refund as quickly as possible, filing with the help of a real professional is your best bet.

Save Time

Doing your taxes on your own, even with the help of good software or an online program, can be very time consuming.

You have to gather all of your tax documents together, read through tax laws you don’t understand or that have recently changed, input all the information yourself, and basically just deal with a lot of hassle and frustration.

Working with an experienced accountant, however, is usually much quicker. You just show up, documents in hand, answer a few questions, and then your accountant will handle all the rest for you in no time flat.

Get Expert Advice

When you file your taxes on your own, you have to make all the decisions yourself. Sure, you might get some popup tips from the app or software program that you’re using, but you’re mostly just working from your own knowledge.

And, honestly, no matter how much you research, you’ll never know as much as a professional. A professional tax adviser will give you real advice in an effort to help you pay less in taxes and to have a better financial standing overall.

In all of these ways, professional tax help is the way to go. If you’ve never worked with an accountant before or if it’s been awhile, at least consider this great option when tax time rolls around.

Indicators You May be Paying Too Much in Taxes

Almost everyone in America has to file and pay taxes. And, while it may be one of the most dreaded parts of the year, taxes are basically a positive thing. They benefit the general public and provide you with a way to “give back” to the greater good of our country.   

With that said, however, no one should have to pay more than his fair share of taxes. And, if you are paying too much, often evidenced by certain key indicators, you need to remedy the problem right away.

Huge Refund Checks

Many people look forward to tax refund time because they tend to get a sizeable check back.

However, that check isn’t a gift from the government the way that many people think. Instead, it’s just a refund of your own overpaid money.

If you’re getting anything back, but especially if it’s a lot, then you’re overpaying in taxes throughout the year. Consider adjusting your withholdings or other tax features with your HR department at work and/or with the help of a tax professional.

That way, you can enjoy more of your money throughout the year, rather than waiting on a tax refund to swoop in and “save” you.

A Recent Marriage

If you’ve recently gotten married, you may find that you suddenly owe a larger than usual tax bill.

While sometimes, if both spouses’ incomes are high and you file jointly, the amount can be accurate, other times, newly married couples have simply failed to adjust their withholdings appropriately.

This is especially true when one spouse is considered a dependent, in which case withholdings can be adjusted down.

A Lack of Exemptions

Almost everyone will qualify for one or more exemptions or tax credits

If you’re not claiming any and are getting hit with a huge tax bill you can barely pay, chances are that you’re just not taking advantage of the tax breaks available to you.

Work with an accountant to make the most of allowed exemptions and other special tax bonuses.

Paying too much in taxes is unfair and certainly doesn’t benefit you. So, if you suspect you may be shelling out more than you should, get with a professional pronto to adjust the situation.

Simple Tax Tips for the Freelancer

When you’re a freelancer, you get to enjoy plenty of freedom with your work. You can set your own hours, decide on who you work with, and everything in between. In fact, the only really challenging part of freelancing is paying your taxes.   

Special and sometimes complex tax rules apply to those who make their own money and act as their own bosses. For this reason, it’s a good idea to seek the help of a qualified financial professional who is used to working with the self-employed.

Aside from that, though, there are some tips you can follow to help you save money come tax time.

Deduct Every Expense You Can

To start with, you should deduct as many businesses expenses as possible from your taxable income. Doing so will enable you to report less income, which, in turn, will lower your tax bill.

Get creative about what you deduct, but do make sure you stay within the bounds of the tax laws. With that said, though, more things than you might imagine are deductible. You can deduct things like advertising costs, work-related travel costs, office furniture costs, business internet costs, and more.

If you’re ever in doubt about whether or not something can be deducted, check with your accountant. These professionals are also a good resource for helping you uncover deductions you might have missed.

Consider an IRA

When you’re self-employed, it sometimes feels like the IRS takes the majority of your income.

One way to keep more of your income safe from the IRS is to open up a traditional IRA.

With a traditional IRA, you won’t be subject to earning limits. With a Roth, on the other hand, you can’t make direct contributions if you earn more than $137,000 for single filers and $203,000 for joint filers. Thus, it’s typically best for freelancers to opt for the traditional option.

These are actually just a few of many helpful tips that freelancers can follow. A good accountant can help you to discover even more. As you can see, if you know how to work the system to your advantage, preferably with the right help, you won’t get hit quite so hard just for working in a way that you love.