Why Tax Consultant is Important

Why Tax Consultant is Important

by | Oct 27, 2017 | Tax Planning, Tax Preparation

Why Tax Consultant is Important

Before we get started with answering the question, let us first understand what a tax consultant is.

The simplest possible definition of a tax consultant is someone who can help you reduce your tax liabilities by following some of the best practices.

Individuals who qualify as tax consultants are trained with the law and accounts so that they can provide you with ways to manage your money and taxes as well. If you have ever been part of the tax filing process, you would be aware of the cumbersome and tiring process. The hiring of a tax consultant makes that part easy as he assists you with the entire process.

Do you really need a tax consultant?

If you are someone who values each and every penny, hiring a tax consultant might be a very effective decision. You can invest the money that you save by hiring a tax consultant somewhere else and make the most of it. Many times, getting the right advice and right direction towards tax planning can be the defining factor between the good and efficient use of your financial resources. Tax consultants are individuals who are thorough with the tax codes and know all the places where you can save money. By incorporating these practices, deductions and taking tax credits when and where possible you can save a substantial amount of money. What you should not confuse tax consultants with are individuals who help you find loopholes in the system. That is far from the truth and in fact misleading in a lot of ways. They merely educate you with the different clauses that you can benefit from.

  • Seasoned tax consultants have a ton of experience under their belts and you can definitely benefit from the same. Sure, there are tons of consultants available who will offer their services at much lower rates as compared to others. But when it comes to taxes and their filings, it is better to take the commonly used road and pick a seasoned or experienced consultant. The chances of seasoned consultants making mistakes are way less as to consultants who are fresh out of graduation.
  • Hiring a tax consultant can keep you away from the nightmares of technical details of the tax codes, which can be overwhelming for a lot of individuals. The tax experts or consultants undergo exhaustive training before they actually start practicing.
  • As the tax consultants are aware of both the government policies as well as the way the government works, it is much easier for them to route around. It is all about using your resources smartly without breaking any sorts of law or without getting into any troubles.
  • Though being aware of the laws might seem not all that significant, they play a critical role deciding a tax consultant for you. Knowing the laws in and out ensures that you do not get into any legal disputes by taking any of the routes mentioned by the expert. Also, the laws undergo amendments on a regular basis, which can be a bit difficult for a layman to keep track of. A tax consultant, on the other hand, is not only aware of these changes but also very well versed with the same.

If you have some additional source of income, filling up the forms properly can be quite challenging. Be it another job or rent a property, a tax expert would ensure the forms are filled up in the best possible way and at the same time also ensure that you do not pay more taxes than you owe to the government.

 

Best Investments for Boosting Your Tax Refund

Best Investments for Boosting Your Tax Refund

by | Oct 24, 2017 | Investment & Income, Tax Refund

Best Investments for Boosting Your Tax Refund

If you go by history or statistics a large number of taxpayers will receive tax refunds. Take the year 2015 for an example, where about 80% of taxpayers received refunds of $3000 or more. Consider that the 80% is out of a total of 150 million individuals. You would certainly want to be in that 80% and even push for higher refunds. We will take a look at some of the best investment tools. These would not only boost your portfolio but also help you bag bigger tax refunds.

Where to invest?

Retirement planning comes to your rescue when it getting better tax refunds is your concern. Simply because they have the capabilities of boosting up your refunds. We all are aware of IRA or Individual Retirement Account, but what most of us are not aware of, is that it provides double benefits when it comes to taxation.

Not only does IRA allow deductions till a certain limit, but also can help you get refunds if your income is within an acceptable limit.

Using a traditional IRA you can avail deductions up to $5500 and up to $6500 if your age is 50 and above.

You can opt for the Retirement Savings Contribution Credit, under which you stand to get tax credits of up to $1000 if filing as an individual or $2000 if married filing jointly. You just need to figure out if you qualify for the credits or not. If you do, do not hesitate to open a traditional IRA and claim tax credits.

A lot of individuals invest their money is Roth IRAs. Things pan out a bit differently in this case, as you cannot deduct your investments using Roth IRA. However, investments in Roth IRA are eligible for Retirement Savings Contribution Credit.

Other investments for tax credits

Investing in Roth IRA or traditional IRA gives you the opportunity to increase your tax refunds provided your income is within certain limits, we will discuss those limits later on. But there are other forms of investments as well, with which you can benefit from the Retirement Savings Contribution Credit.

401(k)

We generally know 401(k) as the retirement plan that an employer sponsors. Apart from the employer’s contribution, you also contribute for the same before taxes. With 401(k) you have the control over the investments. You can choose from mutual funds, bonds, stocks and some other market instruments. The most popular ones being target date funds, which eventually become low risk as you near your retirement. Money that you invest in 401(k) is also eligible for Retirement Savings Contribution Credit.

403(b)

The 403(b) is a retirement plan which is applicable for a limited audience, namely educational institutions and certain non-profit organizations. The plan is tax deferred in nature, meaning they are nontaxable till they grow (usually till retirement). Once you withdraw them post retirement, normal taxation is applicable to them. Investment in 403(b) also qualifies for the Saver’s tax credit.

SARSEP

Companies that have an employee base of 25 or fewer, can avail the SARSEP or Salary Reduction Simplified Employee Pension Plan. With the plan, employees can invest pre-taxed money to their IRA as part of their salary deductions. SARSEP also qualifies for Saver’s tax credit.

One of the best ways for boosting your tax refunds is to look out for eligibility of different tax credits.

There is, however, a small caveat to that piece, you need to be in the low to medium income range to benefit from most of the tax credits if not all. The upper cap for income levels for various categories are:

  • $30750 for single filers
  • $46125 for head of households
  • $61500 for married filing jointly

If you are within these income limits, the above mentioned investments can boost up your tax refunds substantially.

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Earned Income Tax Credit & All It’s Details

Earned Income Tax Credit & All It’s Details

by | Oct 20, 2017 | Deduction & Credits

Earned Income Tax Credit & All It’s Details

Taxpayers having income below a certain limit for a specific financial year can benefit from the Earned Income Tax Credit system provided by the United States of America. Under this tax credit system individuals can reduce the tax they owe to the government. In certain cases, they can even ask for a refund if they have paid more than what they owe.

The intent of this credit system is to reduce the burden of taxes on individuals with low income. It also encourages individuals to start working.

A tax credit usually confuses individuals as many of us are not aware which one we qualify for. The Earned Income Tax Credit system is applicable for taxpayers with low to moderate income. The following are some of the facts and details that you should be aware of when it comes to Earned income tax credit or EITC.

Are you eligible?

Unlike some other tax credit systems, eligibility for EITC is pretty easy going. The following are some basic requirements.

–    You must file taxes either individually or if married must file jointly.

–    Everyone involved must have a valid social security number. (You, your spouse and qualifying children)

–    You should be within the age bracket of 25 to 65 years.

–    The status of your tax filing should not be married filing separately.

–    You should not be on the list of qualified children for someone else.

–    You should be within the limits of earned income, AGI and also investment limits.

For the year 2017, the income limits to avail Earned Income Tax Credit are:

–    $15010 for single filing applicants and $20600 for married filing jointly with no qualified children.

–    $39617 for single filing applicants and $45207 for married filing jointly with one qualified child.

–    $45007 for single filing applicants and $50597 for married filing jointly with two qualified children.

–    $48340 for single filing applicants and $53930 for married filing jointly with three or more qualified children.

If you fall into any of the above categories, you stand to benefit from the tax credit system. Each of these categories has a cap on the maximum amount of credit that an individual or individuals can receive. For no qualified children, the cap is at $510. For one qualified child, the same is $3400 and $5616 for two qualified children. In case of filings with three or more qualified children, the maximum credit is $6318.

Income from investments and other income not included

Keeping all of the above points if you stand a chance to receive tax credits, there is one more factor that you should keep in mind i.e. income from investments.

If your total income from investments such as stocks, dividends, rent or inheritance is in excess of $3400, you automatically do not qualify for EITC.

Some other types of income are also barred from EITC namely social security benefit, any money received for child support, alimony, retirement income and unemployment benefits. Any payment received for work during prison time is also not applicable for the tax credit.

Additional Benefits

EITC is a federally run program, but the benefits are not restricted to the same. Most of the states provide benefits in the form of a certain percentage of the federal EITC. This ensures that more money stays with individuals with low to moderate income levels.

Even though you do not owe anything to the state, you still have access to state EITC which is refundable in almost all the states.

A lot of taxpayers do not file for EITC or any tax credit for that matter. For all the hard work that you put into your jobs, you should not leave out on such benefits. Make it a point to go through the eligibility criteria and see if you can benefit from the EITC. But do not try to falsely claim the same, as it might come back to haunt you at a later stage. As always, it pays off to be honest in case of EITC.

Check out more about Earn Income Tax Credit here.

 

Filing Income Tax Extension

Filing Income Tax Extension

by | Oct 17, 2017 | Tax Extension

Filing Income Tax Extension

 

Even though we know the billing date or due date for credit card payment or phone bill payment we at times miss the same. Though we are not being negligent regarding it, we tend to miss them amidst all the work and chaos in life. The same applies to tax filing as well. We all are aware that come spring, we need to file our taxes. But that never ending project, deadlines for meeting customer requirements, the problem at home, or just plain old Forgot can be the most common reasons for missing filing of tax returns.

Fortunately, IRS understands the same and has a provision in place for such situations. Unlike paying bills, the filing of tax can be a bit time consuming. So if it is already mid of April and you suddenly wake up to realize you are nowhere close to filing income tax returns, just don’t worry. All that you need to do is fill up the Form 4868 and file it.

This then enables you for an automatic extension of six months to finish up with the filing of your tax returns.

All that you need to know about Form 4868 and its filing is below.

What is it?

Filing a Form 4868 provides you with a six month extension for filing your tax returns. Given the fact that the last date for filing tax returns is April 15th, the extended date usually works out to be the 15th of October. However, you might get a few additional days if 15th April is a public holiday or weekend.

In order to benefit from the extension of tax return filing, it is crucial that you fill up the Form 4868 and file it on or before the due date of April 15th.

Details needed for Form 4868

Unlike most other things related to the filing of taxes and tax returns, Form 4868 can be a sign of relief with its simplicity. IRS asks for the following details:

  • Name of individual (spouse name also if married filing jointly)
  • Current address
  • Social security number
  • Estimated tax liability for the year in question
  • Sum total of all payments you have made towards the tax you owe
  • Outstanding tax amount

How to file Form 4868?

You can simply log on to the website of IRS and e-file your extension. On successful receipt of the same, IRS will send you back an acknowledgment. You can use this acknowledgment as a reference in the future, should there be a need for one.

IRS provides an online gateway for paying part of your remaining taxes or the complete amount through its website, specifically IRS Direct Pay.

You can also use your debit card or credit card to pay for the taxes, again by accessing the IRS website. There are provisions for payment over the phone, but that comes with some additional charges. For people who are not all that tech savvy, you can go the old-school way as well. Take a print out of the filled up form and send it across to the IRS center as per your area or region.

You do need to keep in mind that with the extension, IRS doesn’t give you more time to pay your taxes. You will still end up paying fines and penalties for any outstanding amount by the due date. However, extension lets you cut down on the fines and penalties drastically. If it weren’t for the extension, one might end up paying about 10 times more money in fines and penalties. During the spring, if you have that eerie feeling that you cannot complete your tax returns on time, don’t shy away from filing an extension. It will not only allow you to extend the timeline for filing tax returns but also bring down the penalties and fines.

Learn more about Tax from our blog post, click here now.

Taxable Income vs. Nontaxable Income: What You Should Know

Taxable Income vs. Nontaxable Income: What You Should Know

by | Oct 13, 2017 | Tax Planning, Tax Preparation

Taxable Income vs Nontaxable Income: What You Should Know

We all have that feeling that the government is always on the lookout for extracting more taxes from us. That feeling is not too far off if you take into consideration the definition of taxable income.

Once all your deductions are taken away from the gross income, taxable income is what is left on paper.

But things can get pretty confusing when it comes to gross income because as per the laws, income from any source qualifies to be gross income.

It becomes extremely important at such times to take some time off and reflect on the different sources of income and see which of them qualify as taxable and which all as nontaxable. So that you are not confused when the next time you win a jackpot or receive any compensation from your work place. Being aware of them also helps you plan for your taxes more efficiently.

You can also save some money on your taxes if you know it well enough which category a specific amount comes under.

Consider this as a rule of thumb, that any amount or source of money that helps increase your net wealth can be taxable.

Taxable Income

Though this list might turn out to be pretty big, we will try to cover as many sources as possible that qualify as a taxable source of income.

  • Salary from your employer
  • Wage from your employer
  • Any form of commission
  • Any kind of fees
  • Interest received on various fronts
  • Dividends from stocks
  • Compensation when you are unemployed
  • Any tips received
  • Awards and bonus (even if any trips are included)
  • Severance package received
  • Any notes that you receive as part of your service
  • Any form of non-cash income coming out of bartering
  • Rent from personal properties
  • Income or loss from gambling
  • Capital gain or capital loss
  • Financial counselling fees that your employer pays for you
  • Stock appreciation rights
  • Any debt that is cancelled or forgotten
  • Royalties received under any category
  • Back pay awards from any settlements

Any fringe benefits that you receive as part of the services that you provide is also taxable. Some common examples of fringe benefits include:

  • Gym membership paid by your employer
  • Gifts that you receive from your company, even in form of holidays or certificates
  • Vehicle provided by company for personal usage
  • Group life insurance if the same exceeds a certain amount.

Nontaxable income

Now you must be wondering, if there is anything left at all for nontaxable income. But in fact there are quite a few categories left, which are nontaxable. They are:

  • Most of the health care related benefits
  • Any child support money
  • Amount received as inheritance or gifts
  • Cash discounts that you receive when shop from a retailer or dealer
  • Any form of welfare payments
  • Reimbursements from qualifying adoptions

Apart from the above ones, there are a few more instances where certain items are nontaxable.

  • If you are the nominee on someone’s life insurance, the amount you receive on their unfortunate death is nontaxable
  • If your boss or employer provides you with any educational assistance, the same is nontaxable up to $5250
  • Certain companies provide financial assistance for adoption of kids, that amount is nontaxable
  • Compensation that you receive as part of any injury or illness that occurred during working hours or any other federal or state level compensation is also tax exempt
  • Earnings from certain types of bonds are non-taxable

Being aware of different taxable and nontaxable sources makes things a little bit easier when it comes to tax planning. The above points should help you assess if a certain source type is taxable or nontaxable so that you can take appropriate steps.

Don’t forget to check our blog for more Tax related information, Click here now to learn more.