Big Savings on Tax for Newly Married Couples

Big Savings on Tax for Newly Married Couples

by | Feb 28, 2018 | Deduction & Credits, Tax Planning

Big Savings on Tax for

Newly Married Couples

Big Savings on Tax for Newly Married Couples.Of the several advantages of being married to someone, the least expected one comes in the form of tax deductions. Post marriage, if you file your taxes jointly, you can cut down on tax liability by a decent enough margins. You can avoid certain types of penalties, largely dependent on your source of income. If you and your spouse are in different tax brackets, the one earning lower can help in bringing down the overall income and thus reduce the tax liability.

Tax Bracket Changes

A tax bracket essentially provides the highest amount of taxes that you would be liable to pay. As the tax bracket changes with different filing status, the tax rates applicable to you before marriage might change. Post marriage the source of income of both partners is taken into consideration. While it might bump up the bracket for one, it might bring down the tax bracket for the other one.

Enhanced deductions and exemptions

As your status for filing taxes changes from single to married filing jointly, there are several other advantages in the form of deductions and exemptions. Post marriage you and your spouse are eligible for two personal deductions, one each.

Married couples also enjoy the highest standard deductions in the entire tax regime. For an instance, in the year 2017 someone filing as a single taxpayer would have walked away with a $6,350 deduction. For the status married filing jointly the same deductions stood at $12,700.

Each child that you declare as dependent, provisions you for tax deductions and the amount stands at $4,050 per child.

Gifts and Real Estate

If you are not already aware of it, spouses can gift each other any number of gifts either in cash or even property. You can work this in your favor when it comes to property planning. So, the next time you are planning for something in the real estate, do not forget about this clause.

To itemize or to claim standard deduction

Every year one of the toughest decisions that one has to make during the tax season is whether to itemize or opt for standard deductions. But if you own a home and are married, it would add more value if you opted to itemize your deductions. Simply because the interest rate on your mortgage would result in higher deductible amount than what standard deduction would provide you.

W-4

When you file taxes as married filing jointly, you have access to higher exemptions and deductions, than what you would have paid if done separately. Thus, updating your W-4 Form with your employer to reflect these changes is advisable.

Charitable Deductions

We are all aware that there is an upper cap on charitable deductions on a yearly basis. However, married couples enjoy a higher limit when it comes to charitable deductions. This allows for higher deductions under charity which makes way for better tax saving.

Additions to IRA

According to the IRS, you or your spouse may contribute to your IRA funds even if one of you does not work. The benefits that married couples get due to filing jointly are dramatically different from the ones single taxpayers receive. This allows you to save a substantial amount of money as tax and put in money for your retirement at the same time.

If all of the above points were not good enough, you also get to save time while doing your taxes. As both of you must fill one tax return instead of two, you will end up saving time as well.

7 Reasons Why File your Tax Return EARLY?

7 Reasons Why File your Tax Return EARLY?

by | Feb 24, 2018 | Tax Planning

7 Reasons Why File your Tax Return EARLY?

 

1. The Earlier You File, the Earlier You Get Your Refund




  •  A good reason to file your taxes early you’ll get your money sooner.
  • According to the IRS, the average refund was more than $2,800 for 2016 and 2017 Tax Filers…so why miss on that earlier claim and why give you an interest free loan to IRS?
  • Every year taxpayers have too much tax withholds from their pay checks which means IRS is getting interest free loans from the tax payers. So it’s better to get your hard earned money back from IRS ASAP by filing your tax return early and put that money into your savings account, where it can start accruing interest for you rather than leaving it with IRS till the tax filing deadline.
  • Getting refund early might also help you to pay your outstanding bills, credit card bills and other debts.
  • The IRS begins accepting e-filed returns every year in the mid of January.

2. You’ll give yourself more Time to Pay or Plan for Payment

  • Filing early gives you an extra time to pay taxes you owe.
  • Let’s say if you prepare & file your taxes in the month of January and determine how much you owe, you will get almost 2 & half months time to arrange your payments to IRS.
  • It is not mandatory that you need to pay your taxes along with the tax return. You can file your tax return as soon as IRS opens the E-filing window and pay the amount you owe by the deadline (i.e., April 15th)

3. You can prevent yourself from Tax Fraud

  • The IRS estimates that millions of taxpayers were victims of Identity theft tied to tax returns every year.
  • Most tax returns frauds occur early in the tax season. If thieves file a return using your Social Security number before you do, the IRS will reject your return since their records shows the refund has already been paid.
  • If you are a victim of Identity theft, it’ll be on you to get things sorted out, which could not only delay your refund but also constitute a major headache. The IRS says it can take 120 to 180 days (or longer) to resolve tax-related identity theft cases.
  • So if you file your tax return early and gets on IRS records, it makes it harder for thieves to file a second one and grab your refund.

 

4. You’ll reduce Stress

  • Early filers eliminate tax deadline stress.
  • If you are up against the filing deadline, there is added stress of meeting the deadline. If you file early, you eliminate this stress.
  • There’s always peace of mind from filing early.
  • Once your return is filed early, give yourself a small reward for being so efficient and responsible. Then relax while everyone else stresses out about getting their taxes done on time.

 

5. Your Tax Preparer will have more time for you

  • By mid-March of the 2017 Tax Season (i.e. 2016 Tax Returns), nearly 78 million people had already filed their income taxes, that left the remaining 68 million people just one month to file theirs by the deadline.
  • Early filers have greater access to their tax preparer. As the tax deadline approaches, your tax preparer’s schedule tightens. It is best to get on their calendar early when they have more time to devote to you and your return.
  • Additionally, tax professionals often increase their fees as the tax deadline approaches. So waiting may also cost you more to have your return prepared.

 

6. Tax Returns Aid in Loan Documentation

  • You may need your tax return to buy a home.
  • Some lenders for mortgages may want to see a completed tax return as proof of income. Getting your tax return done early, whether you owe money or expect a refund, gives you a head start on the paperwork you will need for these processes and can reduce delays during the process.

 

7. File early to fund an IRA before Tax Deadline

  • If you file early and get a refund, you can use the same money to fund an Individual Retirement Account (IRA) before the April 15th deadline.
  • Let’s say if you are eligible to get a deduction for IRA in your Tax Return but don’t have funds for the contribution before April 15th, the smart way to is to file your tax return early to get the refund and use the same refund for IRA contribution which would help you to increase your tax savings.

 

To Summarize

Filing your taxes long before the April 15 deadline might not be your top priority, but there are many benefits to completing your return early. By filing early:

  • You avoid the last-minute stress,
  • Have time to plan for paying taxes you may owe,
  • You can get your refund faster and
  • Avoid fraud by filling out your tax forms sooner rather than later.

 

2017 FILING SEASON STATISTICS

IRS Cumulative Statistics comparing 04/22/2016 and 04/21/2017

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Tax on Holiday Bonus

Tax on Holiday Bonus

by | Feb 23, 2018 | Uncategorized

Tax on Holiday Bonus



Tax on Holiday Bonus.A large number of companies provide their employees with holiday bonus or end of the year bonus. In fact, a study states that about 80% of the companies do this. It always feels good when you are at the receiving end of such gifts and bonus, doesn’t it? But do not forget the tax liability that might arise out of these bonuses.

Cash

A check or cash bonus paid by your employer is one of the most common forms of holiday bonuses. If you are part of an organization where you are entitled to such benefits, you need to list it out. The bonus amount needs to get into your Form W-2 that you will most likely receive in the month of January. Any cash bonus is treated in the same way as wages. Thus, the taxes that the bonus attract is the same as wages do. You must declare the same in your Form 1040 in line 7 as wages.

If your employer provides gift cards instead of straight off cash, IRS treats it in the same manner as a cash bonus. The gift card you received, would then be taxed in the same way as your wages.

It is also essential that you understand the withholding rules. Because the amount of taxes that you owe large depends on the same.

Under most circumstances, the bonus will be taxed at the same rates as wages, but there are certain exceptions. For an instance, if you receive the bonus separately from your salary or wages, it will be taxed separately. If you have received a bonus of $1 million, the taxes will be different.

Tax Brackets

The bonus that you receive from your employer falls under either of the following categories. Thus, you can deduce for yourself the tax liability.

Less than a million

For all individuals whose bonus amount is less than $1 million, the tax liability depends on how you receive the funds.

Should your employer decide that the bonus would go as a part of your wages or salary, the taxes that apply to your wages would hold good. You might have to pay a higher amount of taxes if the combination of your wages and bonus exceeds the tax bracket you belong to.

If your employer pays you the bonus or gift card separately from your regular paychecks, it would attract a flat tax rate of 25%. Thus, your employer has a key role to play when it comes to taxation on bonuses.

Irrespective of either of the above, if you have or anticipate bonus from your employer, be ready to shell out a bit higher amount of taxes.

More than a million

If you are part of this exclusive group that receives a bonus of $1 million or more, the same would be taxed at 39.6% flat.

How to Report?

Bonus amounts almost always receive a tax treatment that differs from your wages. However, it should be part of your W-2 Form.

In the event of your employer declaring the same in 1099-MISC, make it a point to correct the same. It must go in your Form W-2.

Some employers do not entertain modifying or correcting the above, in such cases also you should report the bonus appropriately. You would need to fill the line 7 of your Form 1040 under 1099-MISC and provide Form 8919 which would show that you haven’t collected your Social Security or Medicare tax.

Other Bonus

Should your bonus include items such as ornaments, weekend getaways, or a holiday package, you are not liable to pay any taxes. Such gifts come under the category “de minimis fringe benefits”.

Details and Understanding for Casualty and Theft Losses

Details and Understanding for Casualty and Theft Losses

by | Feb 13, 2018 | Deduction & Credits, Tax Planning

Casualty and Theft Losses

Casuality and Theft Losses.It is not unknown for people to suffer a loss in the form of theft and casualty for their personal properties. If you are one of them, you can claim the same as itemized deduction for your tax returns. To do so, you need to fill up the Form 4684 to understand how much of yours loses you can report and then mention the same in the Schedule A of the Form 1040.

It is important to note that you can claim only for those losses that are not covered or reimbursed by any insurance company. Also, in order to qualify for the deductions, your loss should amount to more than 10% of your adjusted gross income. You cannot claim a deduction otherwise.

Understanding Casualty and Loses

There are various reasons or aspects that can result in damage or destruction or even loss of property. However, not all of them enable you to deductions under the casualty and loss clause. The following are the only conditions in which casualty comes into the picture.

  • An event occurs swiftly, as opposed to a progressive event
  • Any event that does not occur on a day to day basis
  • An event which is unintentional or something that no one anticipates

Apart from the above points, casualty is also considered if you undergo any of the following.

  • Natural disasters such as earthquake, flood, volcanic eruptions, hurricanes, tornadoes etc.
  • Any form of terrorist attack or vandalism
  • Money that you lose if you the financial institution you deposited your money in, goes bankrupt
  • Any demolition or relocation initiated by the government if the same is deemed unfit for habitat due to any disaster
  • Draught is one of the major reasons behind loss of property, but for you to claim it, you should be involved with any transactions that leads to profit or must have some sort of farming or trading with the property

Though casualty loss covers a lot of ground, there are still a lot of exclusions such as:

  • Setting up a fire willingly or asking someone to do it on your behalf
  • Damage to trees due to any disease or fungus or pests etc.
  • If you break items accidentally
  • If the damages occur due to negligence or not taking proper care, like termites or moth

It is important to note that you should reach out to your insurer immediately to claim for those  loses you underwent, if the property is insured.Inability to do so will be a hindrance in your casualty and theft loses claim. But if the loses are not covered as part of the insurance, then you can claim the same.

Understanding Theft

If the intent of any action is to reduce the property of an individual by removing or taking away money or some portion of the property, it is theft. For the same to qualify as theft it must be done with a criminal intent and must be illegal as per the local laws. The most common forms of theft are as follows:

  • Blackmailing someone
  • Breaking into someone’s house and carrying out a burglary
  • Any form of fraud or denote facts wrongly
  • Any robbery on the property
  • Kidnapping someone and asking for ransom
  • Extorting an individual
  • Misuse of the property or portions of it

If you have been subject to any of the above, you first need to check the adjusted basis of your property before any of these events took place. Post that, you need to figure out what has been the change in your property value due to these actions and deduct the same from the insurance amount;you can claim the remaining amount.