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Taxes

With Tax Returns Around The Corner, Documents Will Help Workers Prepare

July 22, 2020 Leave a Comment

Tax returns were due in on July 2015, but given the circumstances, the federal government have provided a three month extension. Despite this, commentators still expect up to 1.4m to fail to provide a return, which CNBC note will result in a 5% charge and – worse – funds that could be redistributed to the taxpayer being withheld by the IRS. Taxes can be a difficult process, but with a little planning and dedication, they can be made easy. At the heart of these preparations is a simple, but crucial, concept – documents.

The basics – W2 and 1099-G

Aside from your basic details – name, address, social security – the absolute must-have document, supported by evidence throughout the year, is the W2 (for employed people) and the 1099-G (for unemployed people). While these change in need from case to case, and self-employed professions will require further evidence, they do provide the basis for income assessments. When you receive this form from your employer, or start filling it out yourself as a self-employed person, use your time to diligently check for errors. According to US News, the correction process when amending these forms can be time-consuming and costly for both the IRS and taxpayer – get it right first time.

Unique income

Keep a thought for any income you have made through non-formal employment. This can include hobbies, online selling and gambling. To take the latter, Investopedia outline how gambling income can be taxed – anything over $1,200 should be issued a form when paid out by the casino in question. If not, the gambler must still report everything to the IRS. Keep an eye out for these small sums which, over time, can add up to a notable untaxed pot. It will improve the accuracy of your report and keep you out of the radar of IRS investigators, ultimately leading to your tax affairs being in order and timely.

Securing your dues

Aside from the legal requirement to fill out tax returns, the process of tax assessment can provide substantial savings. Deductions can range from K-12 educator expenses and charitable donations through to federally declared disaster rebates and home improvements for energy savings subsidies. Essentially, there is a huge range of things you can undertake in daily life that the government will allow you a refund for. The best way to keep organized here is to keep documents concerning any changes or purchases you make to support the home or business; when compared against the rebate text and criteria, you may be owed costs that you would not have picked up on otherwise. There is no law against making the request in good faith, even if the IRS deny it.

Careful management of your tax affairs is crucial to your long-term financial health and can, indeed, have an impact on your mental and physical health. Having thorough documentation to support your tax process is key in this. Keep your documents; make yourself aware of your rights; and be timely in your filing process.

IRS to Delay the April 15 Tax Payment Deadline by 90 Days

March 17, 2020 Leave a Comment

The IRS will postpone the April 15 tax deadline by 90 days for millions of individuals who owe $1 million or less and corporations that owe $10 million or less, Treasury Secretary Steven Mnuchin said Tuesday in a press conference. USA Today reports:

To be sure, Americans still have to meet the April 15 deadline if they are expecting a refund or are requesting a six-month extension, but they can defer payment for up to 90 days beyond that.

“We encourage those Americans who can file their taxes to continue to file their taxes on April 15 because for many Americans, you will get tax refunds and we don’t want you to lose out on those tax refunds,” Mnuchin said. “We want you to make sure you get them.”

“All you have to do is file your taxes,” Mnuchin said. “You’ll automatically not get charged interest and penalties.”

IRS Reforms Free File Program, Drops Agreement Not to Compete With TurboTax

December 31, 2019 Leave a Comment

Finding free online tax filing should be easier this year for millions of Americans. ProPublica reports:

The IRS announced significant changes Monday to its deal with the tax prep software industry. Now companies are barred from hiding their free products from search engines such as Google, and a years-old prohibition on the IRS creating its own online filing system has been scrapped.

The addendum to the deal, known as Free File, comes after ProPublica’s reporting this year on how the industry, led by TurboTax maker Intuit, has long misled taxpayers who are eligible to file for free into paying.

Under the nearly two-decade-old Free File deal, the industry agreed to make free versions of tax filing software available to lower- and middle-income Americans. In exchange, the IRS promised not to compete with the industry by creating its own online filing system. Many developed countries have such systems, allowing most citizens to file their taxes for free. The prohibition on the IRS creating its own system was the focus of years of lobbying by Intuit. The industry has seen such a system as an existential threat. Now, with the changes to the deal, the prohibition has been dropped.

The addendum also expressly bars the companies from “engaging in any practice” that would exclude their Free File offerings “from an organic internet search.” ProPublica reported in April that Intuit and H&R Block had added code to their Free File pages that hid them from Google and other search engines, diverting many users to the companies’ paid products.

“The improved process will make Free File stronger and give taxpayers another reason to consider this valuable software option,” IRS Commissioner Chuck Rettig said in a statement. The agency hopes the changes will make the free option more accessible for taxpayers in the 2020 filing season, he said.

Millionaires Support a Wealth Tax — as Long as They Aren’t Getting Taxed

December 25, 2019 Leave a Comment

A majority of millionaires support a wealth tax on those worth $50 million or more, but their support declines for a tax on those worth $10 million, according to a new poll. CNBC reports:

Fifty-nine percent of millionaires said they would support a new federal tax on wealth over $50 million, according to the Q4 CNBC Millionaire Survey. Democratic presidential candidate Elizabeth Warren’s tax plan includes a wealth tax of 2% on wealth over $50 million and 6% over $1 billion.

Forty-eight percent opposed a wealth tax on those worth over $10 million.

Attitudes toward the wealth tax are also strongly dependent on political party rather than wealth levels. Fully 88% of Democratic millionaires support a tax on wealth over $50 million, compared with just a third of Republican millionaires.

The Rich Really Do Pay Lower Taxes Than You

October 7, 2019 Leave a Comment

Almost a decade ago, Warren Buffett made a claim that would become famous. He said that he paid a lower tax rate than his secretary, thanks to the many loopholes and deductions that benefit the wealthy. The New York Times reports: 

His claim sparked a debate about the fairness of the tax system. In the end, the expert consensus was that, whatever Buffett’s specific situation, most wealthy Americans did not actually pay a lower tax rate than the middle class. “Is it the norm?” the fact-checking outfit Politifact asked. “No.”

Time for an update: It’s the norm now.

For the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group, according to newly released data.

That’s a sharp change from the 1950s and 1960s, when the wealthy paid vastly higher tax rates than the middle class or poor.

Since then, taxes that hit the wealthiest the hardest — like the estate tax and corporate tax — have plummeted, while tax avoidance has become more common.

List of the Most Tax-Friendly States

October 2, 2019 Leave a Comment

Personal finance site Kiplinger just released its list of the most and the least tax-friendly states in America. To determine how big of a tax bite each state would take out of your hard-earned cash, Kiplinger used a hypothetical couple with two kids and $150,000 in income a year plus $10,000 in dividend income, and then looked at their income, property and sales tax burden.

Some of the most tax-friendly states don’t have income tax including Wyoming, Nevada and Florida. Tennessee has income tax but it only applies to interest and dividends and doesn’t apply to salaries and wages.

The 10 most tax-friendly states:

1. Wyoming
2. Nevada
3. Tennessee
4. Florida
5. Alaska
6. Washington
7. South Dakota
8. North Dakota
9. Arizona
10. New Hampshire

As for the least-tax friendly states, Illinois took the No. 1 spot on the list due to their very high property taxes. Both Connecticut and New York, which have pretty high income taxes, are next on the list. Surprisingly California didn’t crack the top 10 least-friendly tax states due to Kiplinger’s calculation method.

The 10 least tax-friendly states:

1. Illinois
2. Connecticut
3. New York
4. Wisconsin
5. New Jersey
6. Nebraska
7. Pennsylvania
8. Ohio
9. Iowa
10. Kansas

What the New Tax Cuts Mean For National Debt and American Households

November 9, 2017 Leave a Comment

On November 2nd, 2017, we saw the details of the highly anticipated tax plan being released. Given the magnitude of this plan, it is safe to forecast a huge change in the way Americans pay taxes. Since a large proportion of citizens voted for the opposite to what has been presented, let’s look at how this change will affect American households and the country’s national debt.

New Cuts – What to Expect?

The new tax plan looks to cut tax rates and also cut contributions in a number of vital areas including medical programs such as Medicare. Another program being scrapped is local deductions and student loan deductions, while corporate tax sees a 15 percent reduction. With all these changes, what does this mean for our national debt? Well according to calculations, the revamped tax plan will actually add $150 billion a year in national debt. In other words, the fiscal deficit wouldn’t be decreasing but increasing.

However, there are no plans to increase revenues elsewhere or by any other means. Ultimately this leads to reduced national revenue and increased national debt. In a decade, this would easily place national debt at its highest since World War II. Considering America’s current debt of $20 trillion and $12.7 trillion in consumer debt, it’d be safe to say things aren’t looking very good.

However, it has to be said that America isn’t the only country facing such a predicament. A great number of European nations are also dealing with a challenging economic situation, not to mention some of the most indebted African countries, like Uganda and Namibia.

As a percentage of America’s GDP, we now owe more than the country generates annually. By cutting taxes garnered from citizens and corporations, the government will see a federal deficit.Trump’s administration argues that this increase is necessary to achieve the aggressive growth he laid out, most notably the 6 percent annual growth in the American economy. So how does the administration plan to pay for this? [Read more…]

How to Protect Your Identity at Tax Time

October 26, 2017 Leave a Comment

Your tax return is full of personal information, which is why it’s important to make sure it stays safe. Learn basic measures to help protect yourself from identity theft and tax scams. Khan Academy partners with Better Money Habits to give you a guide on how to protect your identity at tax time.

Protecting Your Identity at Tax Time

Trump Hints That Tax Cuts Are Coming

October 22, 2017 Leave a Comment

President Donald Trump

Trump plans to reduce tax rates drastically to promote job and income growth. President Trump writes on USA Today:

Today is the anniversary of former president Ronald Reagan signing into law the Tax Reform Act of 1986. The act was the second major law he signed to reform the tax code for the American people.

Republicans and Democrats came together to cut taxes for hardworking families in 1981, and again in 1986 to simplify the tax code, so that everyone could get a fair shake. The rest, as they say, is history.

The economy boomed, launching into one of the largest peacetime economic expansions in history. Dormant small businesses and factories sprung back to life. The famed American Worker produced at unprecedented levels. The median family income rose. And more American products than ever before reached foreign shores, stamped with those four beautiful words: “Made in the USA.”

The 1980s also saw extraordinary ideas transformed into reality by American inventors and entrepreneurs. Many of those creations dramatically improved our quality of life. Others connected us like never before and put an entire universe of information at our fingertips. Still others, like the space shuttle after its first launch in 1981, stretched the bounds of what we thought was possible for humankind.

It was a time of extraordinary optimism — it was truly “Morning in America,” an economic miracle for the middle-class.

A lot has changed since then, especially when it comes to taxes.

While our economic competitors slashed their taxes in hopes of replicating America’s success, our leaders remained complacent or, in some cases, reversed course.

We are now among the highest taxed nations in the developed world. Our tax code and laws have nearly tripled in length since the 1986 reforms. They now span 2,650 pages, with another 70,000 pages of forms, instructions, court decisions, and other guidance.

We have watched our leaders allow other countries to erode our competitive edge, take our jobs, and drain our wealth. And, for the first time in our history, Americans have feared that their children will not grow up to be better off financially than they are.

That era of economic surrender is now over.

[Read more…]

What You Need to Know Before Collecting Unemployment Benefits

July 21, 2017 Leave a Comment

If you lose your job or are out of work through no fault of your own, you may be eligible for unemployment benefits. If you quit for good cause, are fired for anything other than misconduct, or were laid off and your earnings meet a certain threshold, most states will provide you with unemployment. Before you start cashing in, here are some factors you should consider.

Who Qualifies for Unemployment Benefits?

Though unemployment eligibility varies from state to state, there are a few rights that are fairly consistent across the board. Here are a few of them:

  • Some States Allow You to Collect if You Quit – Some of the circumstances where you can collect unemployment if you quit include domestic violence, lack of work, caring for an ill family member, medical reasons, and constructive discharge, where the working conditions become intolerable for a reasonable person.
  • You Can Take Your Children Out of Childcare While Unemployed – If you want to save money while collecting unemployment benefits, you can keep your children out of day care and watch them yourself. The only requirement is that you must be actively looking for jobs and available to work.
  • Your Unemployment Benefits Will Last for Half a Year – Almost every state offers unemployment for 26 weeks. This varies depending on when and where you filed your first claim and how the economy is doing. Occasionally, Congress will authorize Emergency Unemployment Compensation that will help the unemployed for upwards of 70 weeks.
  • You Have the Right to Appeal a Denial  – Many unemployment claims are initially declined. However, you have the right to appeal a denial of benefits decision.

Why You Might Want to Think Twice About Collecting

Come tax season, many recipients of unemployment benefits are surprised to find out that the payments they received are taxable. In some states, you can choose to have the taxes taken out. If you do not go this route, you should expect a big financial hit when you file your tax return.

If you are part of a union that also pays you benefits, that money is taxable. Though it may be hard to think about taxes when you are already cash strapped due to a loss of work, it is crucial that you plan early. A good rule of thumb is to set aside 25% of any income that you receive that could be taxed later on. That way, when tax season comes, you will be ready to pay.

How to Save Money Under the Trump Tax Plan

May 7, 2017 Leave a Comment

President Trump has announced the new tax plan that would replace the existing 7 tax brackets to 3 tax brackets and reduce the business tax rate to 15%. Under the Trump tax plan, we might all want to become corporations to save a lot of money.

With the proposed corporate tax rate of 15%, high income earners can start their own corporations to avoid being taxed at ordinary income tax levels and to benefit from the 15% tax rate from small business pass-through income. That means any individual making more than $37,950 can use the small business pass-through income to realize a 10% – 24.6% tax break!

Neil Irwin explains on The New York Times:

In the future a whole lot of people may just become corporations. That’s because of a huge loophole implied by the broad tax ideas the administration recently released. Unless revised in actual legislation, the plan would give millions of Americans the opportunity to cut their taxes by essentially turning themselves into small business entities…

The opportunity to game the system arises from the huge gap between the tax rate paid on individual income — up to 39.6 percent now, or 35 percent under the Trump plan — and the low rate on business income the president proposes, of 15 percent. He seeks to apply that rate to all businesses, including “pass-through” organizations such as limited liability companies and S corporations, and that is where the opportunity for games arises.

For example, I am currently an employee of The New York Times, paid a salary every two weeks to write articles about economics. My earnings are labor income; I happen to be in the 28 percent tax bracket.

Suppose I instead formed Irwin Scribblings L.L.C., a “company” dedicated to providing economics writing services. Irwin Scribblings could then contract with The Times to provide articles about economics for a rate equivalent to the value of my current salary and benefits.

Under current law, I would pay the same taxes on that business income that I do on personal income. In important ways I would be worse off, as I would need to pay more of my own payroll taxes, wouldn’t have unemployment insurance, and would need to get health insurance through some channel other than my employer.

But under the Trump tax plan, my tax rate would fall to 15 percent from 28 percent, saving thousands of dollars a year — enough to justify those annoyances.

In summary, Trump’s tax proposal would reduce the corporate tax rate from 35 percent to 15 percent. Individuals who own a business can take advantage of the low pass-through tax rate.

Trump Vows Biggest Tax Cut in American History

April 27, 2017 Leave a Comment

President Donald Trump

President Trump vows to unveil the biggest tax cut and the largest tax reform in American history. The existing 7 tax brackets will be replaced by only 3 tax brackets. Also, standard deduction will double while many tax breaks for the wealthiest taxpayers will be eliminate. Business tax rate will be reduced to 15%. Here’s the detail of the 2017 tax reform for economic growth and American jobs, the biggest individual and Business tax cut in American history.

Goals For Tax Reform

  • Grow the economy and create millions of jobs
  • Simplify our burdensome tax code
  • Provide tax relief to American families–especially middle-income families
  • Lower the business tax rate from one of the highest in the world to one of the lowest

Individual Reform

  • Tax relief for American families, especially middle-income families:
    • Reducing the 7 tax brackets to 3 tax brackets of 10%, 25% and 35%
    • Doubling the standard deduction
    • Providing tax relief for families with child and dependent care expenses
  • Simplification:
    • Elimination targeted tax breaks that mainly benefit the wealthiest taxpayers
    • Protect the home ownership and charitable gift tax deductions
    • Repeal the Alternative Minimum Tax
    • Repeal the death tax
  • Repeal the 3.8% Obamacare tax that hits small business and investment income

Business Reform

  • 15% business tax rate
  • Territorial tax system to level the playing field for American companies
  • One-time tax on trillions of dollars held overseas
  • Eliminate tax breaks for special interests

Process

  • Throughout the month of May, the Trump Administration will hold listening sessions with stakeholders to receive their input and will continue working with the House and Senate to develop the details of a plan that provides massive tax relief, create jobs and makes America more competitive.

Summary

President Trump’s proposal for tax reform will reduce seven federal income tax brackets to three brackets: 10%, 25%, and 35%.

The standard deduction will be double so that more taxpayers will benefit by choosing the standard deduction for simplification. On the other hand, most of the itemized deductions will be eliminated except for mortgage interest and charitable contributions. Overall, taxpayers that already used the standard deduction will see a significant saving in taxes.

The new tax proposal gets rid of Alternative Minimum Tax. Those who required to pay the AMT will be a decrease in income taxes. This change would make the tax system simpler. The tax proposal also eliminates the estate tax so that there’s no tax  when leaving property to heirs and offspring.

Lastly, the new tax proposal limits the long-term capital gains tax rate to 20%. Most taxpayers won’t be affect as the top-end tax rate for capital gain is already capped at 20% except for some special circumstances.

Americans Get an F on Income Tax Quiz

April 18, 2017 Leave a Comment

When it comes to tax, Americans get an F on many basic personal finance questions about federal income tax returns. As the 74,608-page-long federal tax code getting longer and more complex, the taxpayers’ confusion and frustration are padding the coffers of tax preparers and services. Based on the survey of more than 2,300 adults from Personal finance site NerdWallet, more than half of taxpayers don’t understand many basic personal finance questions about federal income tax returns relating to college savings, health care and retirement.

So why the majority of taxpayers fail badly on many basic personal finance questions about taxes? Quentin Fortrell at MarketWatch offers an answer. “One theory: They simply don’t know what they’re doing. Some 57% of taxpayers don’t know what a W-4 is, the Nerdwallet survey found, and 59% don’t know that April 18, 2017 is the deadline for making a tax-deductible contribution to a traditional individual retirement account for the 2016 tax year. What’s more, 58% of taxpayers incorrectly believe that getting a tax extension means they can delay the due date of their income tax payment.”

Here are 10 basic personal finance questions about taxes:

1. Is the money you put in a Roth IRA pretax or post-tax?
A) Pretax
B) Post-tax
C) None of the above
42% got the right answer [Read more…]

How to Reach a Live Person at IRS to Resolve Tax Problems

March 29, 2017 5 Comments

Figure out your taxes is just the beginning of the nightmare. Try to reach a human being at the Internal Revenue Service to resolve a tax dispute can be a big headache. If you’re stuck in this IRA bureaucratic mess, consider getting in touch with the IRS’s Taxpayer Advocate Service.

The IRS’s Taxpayer Advocate Service, which operates independently within the agency, gets high marks from accountants, lawyers, and tax specialists for its effectiveness at cutting through red tape. You may be eligible for help if your IRS problem is causing financial hardship, or if you believe an IRS procedure isn’t function properly. The most common problem is tax-related identity theft, which can tie up refunds for months.

Phone Numbers to Reach a Live Person at IRS

You can call the toll-free number to find out if Taxpayer Advocate Service can help you: 1-877-777-4778. Make sure you have your social security number ready before you call.

Alternatively, you can also call 1-800-829-1040 to talk to a live person at the Internal Revenue Service. The IRS has reserved this special 1040 number, in the name of the famous Form 1040, to help taxpayers with tax issues. Be aware the waiting time might increase during the tax filing season.

Why Is It So Hard to Reach a Live Person at IRS?

Even though the Internal Revenue Service employs 84,000 government workers, the agency is overworked to collect more than $3 trillion in annual tax receipts every year. Due to the cut in funding, its budget for fiscal 2016 was even less than its budget in 1995 adjusting for inflation. The insufficient system and the budget cut are the main reasons why it is extremely hard for you to reach a live person at IRS.

Years of budget cuts have handicapped the IRS’s capacity to answer consumers’ phone call. Last year its telephone service fell to an all-time low, with just 38% of callers able to get though and an average wait time of more than half an hour. Now you know the real culprit when you can’t reach a live person at IRS.

Why Doesn’t IRS Upgraded Its Old Technology into the Internet Age?

You would think that, with its $11.2 billion budget, the IRS should spend some money on information technology to improve their inefficient system in this 21st century internet age. The IRS tried but failed miserably to make more online tools available to taxpayers.

The IRS’s recent disaster was an online feature called Get Transcript. The tool allowed taxpayers for the first time ever to download their records directly from IRS.gov. However, hackers have found ways while using Get Transcript to steal the personal information of 724,000 people. As a result, the IRS has to shut down Get Transcript program.

Additionally, another attack used 101,000 stolen Social Security numbers to fraudulently generate PINs for electronic filing of tax returns. Fortunately, no IRS data were exposed. The agency immediately disabled another online tool that taxpayers could retrieve a separate PIN they had been assigned for identity protection purposes.

Basically the IRS got attacked or at least probed over a million times a day. After all, the U.S. Treasury is the mother of all piggy banks. As you can see, there are immense technological challenges for IRS to upgrade their systems to better help taxpayers like you and me.

Major Tax Cuts: First Overhaul of the Tax Code in Three Decades

March 27, 2017 Leave a Comment

After tumbling spectacularly while failing to repeal Obamacare, Republicans set their sights on major tax cuts. The New York Times reported:

Picking themselves up after the bruising collapse of their health care plan, President Trump and Republicans in Congress will start this week on a legislative obstacle course that will be even more arduous: the first overhaul of the tax code in three decades.

Mr. Trump’s inability to make good on his promise to repeal the Affordable Care Act has made the already daunting challenge of tax reform even more difficult. Not only has Mr. Trump’s aura of political invincibility been shattered, but without killing the Affordable Care Act, Republicans will be unable to rewrite the tax code in the sweeping fashion that the president has called for.

The grand plans of lower rates, fewer loopholes and a tax on imports may have to be scaled back to a big corporate tax cut and possibly an individual tax cut.

A lot of people think Mr. Trump might go for this to get an easy win.

“They have to have a victory here,” said Stephen Moore, a Heritage Foundation economist who advised Mr. Trump during the presidential campaign. “But it is going to have to be a bit less ambitious rather than going for the big bang.”

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