Does it make sense to file your taxes early?

Does it make sense to file your taxes early?

Does it make sense to file your taxes early?

Filing taxes can be a bit boring and overwhelming. Apart from your life and work, you need to devote some time and energy to file your taxes early. A lot of taxpayers barely are able to file their taxes on time, let alone before time.

What if there are some strong reasons and benefits for filing your taxes early? Would that pull you into the idea of filing your taxes early? If yes, here are some of the most prominent reasons why you must seriously consider filing your taxes early.

1.To Avoid Missing Out On Tax Benefits

Usually filing your taxes at the end means, that you are running against the clock. In such cases, the chances of missing out on some information are quite possible. A common mistake made by taxpayers filing their taxes in the end if using a wrong SSN or forgetting to mention their SSN, or their dependent children’s SSN or spouse’s SSN. Missing out on SSN is a sure way of missing out on certain tax deductions and tax credits.

2.A quicker Tax Refund

When you consider data from the previous years, you will find out that about 72% of taxpayers receive tax refunds up to $3,000. That is a decent chunk of money that you can use as rainy-day savings or paying off some debt. Filing your taxes earlier allows for a quicker tax refund.

3.Possibly Bigger Refunds

When you file your taxes early, you can benefit from certain life changing milestones. Milestones such as marriage, or the birth of your child, starting your own business, etc. can translate into better tax refunds or deductions. Which ultimately will help you save money. Thus, filing your taxes early can be beneficial.

4.Debt Management

In the event that you are struggling with some of the debts, opting for an early tax filing can save the day for you. The IRS expects to issue tax refunds within 21 days of your filing tax returns. The earlier you file your taxes, you boost the chances of an early refund and thus, it can help you manage some of your debts as well.

5.Leverage Your Time and Money

When you file your taxes early, you are firstly not under any pressure of filing them before the deadline. It enables a smoother filing. Secondly, the chances of mistakes are also minimal, thereby allowing you to spend less time on tax filing. And more importantly, you can expect an earlier refund as well. You can then use these funds either for a quick trip while your friends and colleagues are busy filing their taxes or use them for other purposes.

6.File Taxes Online

Once you have made up your mind to file your taxes early, you can visit online portals to help you file your taxes. There are a lot of trusted portals, which can help you file your taxes within a few minutes. All you need to do is provide some basic information and answer simple questions. The portals can help you extract the most out of your refunds as well. And the best part is, you can do this from the comfort of your home or office or even while you are vacationing. If you need additional help in the form of an Enrolled Agent or a CPA, the portals would be able to help you with that as well.

Apart from the most obvious benefit of peace of mind and no stress during the tax filing season, the above are some of the other benefits of filing your taxes early. If you have never filed your taxes early, now might be the best time to give it a shot and reap its benefits.

Reference

https://blog.turbotax.intuit.com/tax-refunds/6-reasons-it-pays-to-file-your-taxes-early-19100/

How Much To Save Up For Your Retirement In The US?

How Much To Save Up For Your Retirement In The US?

How Much To Save Up For Your Retirement In The US?

A lot of us look up to retirement so that we can hang our boots and finally relax or take a break from all the running around. However, how well your retirement goes depends on a few important factors. The quintessential one being how much you save for your retirement.

Should you plan your retirement well in advance and align your savings and investments accordingly, the chances are high you will have a stress-free retirement phase. To aid you in the entire process of making your retirement a much happier place, here are some tips.

The amount that you need to put away for your retirement depends on the following factors.

  • Your age when you start investing for your retirement.
  • Your paycheck when you decide to save for your retirement.
  • The age at which you wish to retire.
  • The returns that you are expecting on your investments.

There is a simple correlation when it comes to saving for your retirement. When you start saving for your retirement early, you will end up setting aside a smaller chunk of the salary. And the reserve also holds good. The later you start, you must invest a larger chunk of your paycheck towards your retirement.

How Much Is Enough For Retirement?

Your lifestyle plays a crucial role in deciding the amount of money you would need for your retirement. If you wish to retire at 60 years and expect to live for another 30 years, you will need enough money to support you through that entire duration. You should consider the needs along with wants as well. A simple monthly budget will help you understand the amount. But unexpected medical expenses are something that you must also consider.

Estimating Your Requirements

There are several online calculators that you can use to estimate the amount you must set aside for retirement. As a general rule of thumb, when you are 35 years old, you would need to save about 1 to 4 times your annual income for your retirement. Similarly, when you are 50, the savings must be at 5 to 10 times your annual income. You can reach out to a trusted financial advisor if you need details on specifics.

Optimize Your Income Taxes

There are different ways to fund your retirement. Once you start optimizing your income taxes, you will find additional room for savings for retirement. Here are a couple of ways to do the same.

  • Withholdings

A lot of taxpayers withhold a lower amount from their taxes while declaring their W-4 Form. Eventually, the IRS refunds the amount at the end of the tax season. Should you opt to withhold exactly as much taxes as you owe, you will end up with some savings. You can then invest this additional amount into a tax-deferred retirement plan. Thus, do not forget to update your W-4 if there is any change in your filing status, income, employment, etc.

  • Refunds

And should you decide not to alter your withholdings, you can expect a refund from the IRS at the end of the tax season. You can use this refunded amount to fund your retirement. Depending on the amount that you receive, you can either put the entire amount into a tax-deferred investment account or a portion of it. If the refund is a considerable amount, you can opt to use only a portion of it.

Start saving for your retirement at the earliest and you will have to put away a smaller amount every month. This will give you a head start and the possibility of saving a higher amount as well.

Reference:

https://www.taxslayer.com/blog/how-much-do-i-need-to-save-to-retire/

Is lottery/gambling winnings taxed for an NRI in the US?

Is lottery/gambling winnings taxed for an NRI in the US?

Is lottery/gambling winnings taxed for an NRI in the US?

It is hope that gets us to buy another lottery ticket or head out to a casino. Is Lottery taxes for an NRI in the US The hope that we might win the next lottery or hit the jackpot. If you have won either of them, first of all,congratulations. Before you start planning how to spend the amount, here is something that you must consider, taxes. The winning amount is taxable,but you choose how you wish to get the winning amount.

You can either opt for a lump-sum payout or as an annuity. Taxpayers usually have 60 days to decide the method and it has an impact on the taxes that you must pay to the IRS. If you have not won a lottery or winnings, it still might be a good idea to be aware of the tax implications. Here is all that you need to know.

Lump-Sum or Annuity?

Each method has its pros and cons. Should you opt for the payout as an annuity, you will be placed in a lower tax bracket and a fewer amount of taxes. The only caveat being, the taxes might go up in the future since you do not have any control over it. If the winning is relatively lower, you can opt for the annuity method.

Taxpayers who have won millions, taking the payout as a lump sum is a better option. While it might take a decent chunk of your winnings, you still getthe remaining money at a single shot. If you opt for an annuity, the lottery will pay only 4.5% of the total earnings per year. It will take a long time to recover the entire amount. It is recommended that taxpayers who take the lump sum reach out to a financial advisor to help them with the winnings. Putting the winnings at the right places will ensure you do not spend a lot of it rather earn more from it.

Taxes on Both the Methods

Should you go ahead with a lump sum payout, 25% of the total earning is withheld before making the payment to you. This amount is not the actual taxes that you owe to the government. Once you file Form W-2G, your total liable taxes will be calculated. And you will get to know the total taxes that you owe to the government in April.

And for the annuity method, each installment is taxed as they are handed over to you. Similar to lump sum payout, this is not the actual amount of taxes. Only when you file your Form W-2G, you will get to know the total amount of taxes that you owe to the government.

Depending on the state that you live in, you might have to pay state taxes as well. You must only pay federal taxes and no state taxes if you live in Florida, South Dakota, Texas, Tennessee, Alaska, New Hampshire, California, Nevada, Wyoming, Pennsylvania or Washington.

Minimize Your Tax liabilities

There are a couple of steps that you can take to reduce your tax liability when it comes to earnings from a lottery or gambling. For starters, you can donate some of your earnings to charity. You can then itemize your deductions and reduce your liability.

Alternatively, you can gift a portion of the earning to friends and family. As per the law, you can gift up to $15,000 per person before the gift taxes come into the picture. And lastly, you can create a trust and put your money in it, which will reduce estate taxes should anything happen to you.

Knowing the tax liability for lottery or gambling will ensure that you do not get a surprise in April during the filing of taxes. Being aware will help you better plan your taxes.

Reference:

https://www.taxslayer.com/blog/winning-lottery-taxes/

https://blog.turbotax.intuit.com/income-and-investments/how-are-gambling-winnings-taxed-8891/

Buying A House In The US? Know The Tax Implications For The Same

Buying A House In The US? Know The Tax Implications For The Same

Buying A House In The US? Know The Tax Implications For The Same

Buying your own house is one of the major milestones during a lifetime. Each buyer has a different reason to buy a house, but there is one aspect that everyone benefits from. It’s the taxes. On buying a house, you can get tax breaks which will help you reduce your tax liability.Being aware of the nitty-gritty and details will help you make the most out of these. Whether you already have bought a house or are planning to buy one, here are the tax implications that you must know.

Mortgage Payments Are Tax Deductible

Once you buy a house and start paying the mortgage, a portion of it goes towards paying the interests and a portion towards the principal amount. You might have to pay property taxes and insurance premiums to your mortgage provider as well. And when the time comes, they will pay it to the respective entity on your behalf.

As a general practice, you can take a deduction on the amount that you pay as an interest to your bank or lender for the mortgage. Also, you can deduct the amount paid as property tax to the lender in your tax returns as well.

However, a change in the rule now puts a cap on the amount that you can deduct as state or federal taxes, which includes property taxes from your returns. Post the amendment, you can deduct up to $10,000 only for property, income or sales tax.

Mortgage Insurance Premiums

Homebuyers who pay less than 20% as the down payment for their homes, may have to take the Private Mortgage Insurance. This cover is essentially recommended by the lender since they want to get coverage in the case of any default. You can utilize this insurance premium for a deduction, provided you itemize your deductions and the insurance was bought post 2006.

Taxpayers whose Adjusted Gross Income exceeds $100,000 would be subject to phasing out of deductions. As part of phase-out, a taxpayer must deduct 10% of the insurance premium paid for every $1,000 that exceeds $100,000. And the deduction is not applicable for taxpayers who have an AGI above $109,000.

Another important aspect to understand is that though standard deduction might be the easy way out, they do not offer a lot of benefits. Only when you itemize your deductions can you maximize your deductions. Here are the standard deductions just for your reference.

Filing Status Deduction
Single/Married filing separately $12,000
Head of a household $18,000
Qualifying widow(er) with a dependent child/Married filing jointly $24,000

Buying A House For Tax Benefits

Given the tax benefits of buying a home, few taxpayers choose to buy a house just for the tax benefits. If you are planning for such a purchase, it is essential to be cognizant of a few things first. For starters, irrespective of how much tax benefits you receive, it does not make a lot of sense to overbuy a house. By overbuy, we mean buying a house that is completely out of your budget, so as to get tax benefits.

Sticking to a budget is important since you should be able to pay off the installments comfortable without adding a lot of financial stress on yourself. Once you plan and buy a house within your budget, the deductions come as a bonus and should not be treated as a primary reason.

If you have decided to buy a house in the US, you must consider the above tax implications and take a decision accordingly. And most important look at the economic side of things as well before signing the documents.

Reference:

https://blog.taxact.com/homeownership-tax-breaks/

Top #5 Tax Tips For NRI’s Working As Personal Trainers In The US

Top #5 Tax Tips For NRI’s Working As Personal Trainers In The US

Top #5 Tax Tips For NRI’s Working As Personal Trainers In The US

Being self-employed brings a lot to the table. From having the freedom to choose your work timings to create a business on your own. Though there are a few challenges, the positives far outweigh the negatives. And it gets even better if you happen to be a personal trainer as you get a chance to help people stay fit. However, being self-employed also means that you have to handle your taxes on your own. Here are top 5 tax tips for NRIs working as Personal Trainers.

  • Setting Up Costs

If you just started as a personal trainer in the country, the chances are high you would have spent a considerable amount of money on creating a website, advertisements, marketing, figuring out business location, etc. You can deduct these expenses from your taxes.

  • Cost of Procuring Equipment

The IRS allows deductions for work related equipment. For any fitness equipment that you have purchased or any training related tools, you can get a healthy tax break on the same. For instance, if you buy any equipment that your clients will be using, you can claim the expenses for a tax break. And the location of the equipment used doesn’t matter much. Meaning, clients can use the equipment or tools in your place, their place, your studio, etc. The only verifying parameter is that the equipment must be used for business.

  • Educational and Training Materials

Educational and training materials offer dual benefits. For starters, you can claim for any educational or training expenses for your clients as well as for yourself. One of the prime examples is that if you undergo any training or educational courses to enhance your skillset, you can claim the amount as deductions. Similarly, if you have any apps or training videos that your clients use, you can claim those as deductions as well.

  • Travel Expenses

There is a very good possibility that you must travel to meet with your clients. As a self-employed individual, you can claim these expenses as well. You can claim a deduction of 58 cents per mile that you drive. If you drive to your client’s place for a training session, you can claim this amount. Though it might not seem a lot at first, if you keep driving to the client’s place regularly, it can add up to be a considerable expense. The IRS even allows deductions under the pretext of depreciation of the vehicle, if you use your vehicle to drive to client’s place.

If you must fly to any client’s place, you can claim the flight expenses along with any hotel accommodation. The IRS even allows you to deduct up to 50% of the meals that you consume on such trips.

  • Business Expenses

There are some generic business-related expenses that are common to everyone. If you have a dedicated phone line to interact with clients or take calls from potential clients, you can claim the bills. If you have to acquire a state license for your personal training classes, you can claim them as deductions as well. Similarly, you can utilize any expenses related to the bookkeeping of your business or tax preparation for a tax break.

If you are using your primary bank account for business, any changes that you pay to the bank for the account is also tax-deductible.

  • Health Insurance

Any contributions that you make towards health insurance plans or retirement plans for your future are also tax deductible. One of the benefits of being self-employed is that you can even deduct your premiums paid for health insurance.

Knowing everything about taxes and especially the ones pertaining to your occupation is important to be able to plan taxes and reduce liability.

Top #10 Tax Deductions That You Might Not Have Even Heard Of

Top #10 Tax Deductions That You Might Not Have Even Heard Of

Top #10 Tax Deductions That You Might Not Have Even Heard Of

The holiday season is around,and taxes are the last thing that one would like to think of. Tax Deductions,However, even before you realize, the holiday season would be over and the tax filing season would be at center stage. Spending a few moments to plan your taxes can help you in lowering your tax liabilities and a smoother tax filing season. And who doesn’t like lower taxes! Here are some Tax deductions that taxpayers do not use that often.

1.Use Your Vehicle’s Mileage

Whether you are self-employed or work for a business, you can claim your vehicle’s mileage as expenses as 58 cents for every dollar. The number is slightly higher from 2018, where one could claim 54.5 cents per dollar. Taxpayers who work for different clients can even claim the amount spent on traveling between different job locations.

2.Miscellaneous Itemized Deductions

Certain miscellaneous tax deductions such as tax preparation expenses or job-related expenses that are not reimbursed are no longer covered under itemized deductions. Tax preparation expenses are still covered for self-employed individuals. Losses due to fire, shipwrecks, storms, etc. are deductible up to 10% of the adjusted gross income of an individual, as long as the natural disaster is federally declared.

3.State and Local taxes

The IRS allows taxpayers to deduct either state income tax or state sales tax as long as you itemize your deductions. For states with no income tax, there is no reason why you should not claim the sales tax that you have paid. You can opt for the deduction that offers you the biggest tax cut. The maximum amount that you can deduct stands at $10,000.

4.Medical Expenses

You can claim medical expenses for a financial year, including miles driven for medical purposes at 20 cents a dollar. However, this is applicable only if your medical expenses exceed 10% of your adjusted gross income, provided you itemize the deductions. This might include the installation of certain equipment in your home, as recommended by the doctor.

5.Camping For Kids

Taxpayers with children less than 13 years can avail of the Child and Dependent Care Credit. This is applicable if you took your children to day camp before or after their daycare, or school care program so that you can go to work. This excludes sleepover camps or overnight camps.

6.Education Expenses

You can make use of the American Opportunity Tax Credit and Lifetime Learning Credit.You can claim up to $2,500 underAmerican Opportunity Tax Credit for expenses in the college. Similarly, you can claim up to $2,000 under Lifetime Learning Credit for tuition fees and even books.

7.Health Insurance Policy

Any premiums that you pay for yourself and your family members, you can take deductions for the same if you are self-employed. Employees might be able to make the premiums tax-deductible if they can itemize these deductions.

8.Charity

Irrespective of how small your charity is, you can claim the same for deductions. The only thing to keep in mind is that you must have receipts for the same. You can even claim the miles you have driven for charity including parking and tolls at 14 cents per mile.

9.Home Office

If you use your home for work-related purposes, you can claim certain expenses such as utilities, rent, depreciation, maintenance, etc.

10.ODC

The Other Dependent Credit comes in handy if you take care of someone other than your dependent children. You can take tax credits up to $500 for every non-child dependent that you support.

Tax planning is an important part of financial planning and must not be ignored. Knowing the basics of taxes and the deductions is essential and helps in the long run to save money.