I hope you enjoyed the President’s Day holiday. Our kids were out of school on Friday & Monday, so we had a long weekend full of fun times. President’s Day reminds me of tax season. Although IRS technically started accepting tax returns on January 23rd, most of us have not filed because we were waiting for information. Also, some returns weren’t being processed at that time. For example, if you are claiming the refundable portion of the Child Tax Credit or if you are claiming the Earned Income Tax Credit and were receiving a refund, it wouldn’t be paid before February 15th. Now, tax season is definitely here. Unless you are waiting on some K-1s or 1099s, you probably have the forms that you need in order to file your taxes.
I recently attended an 8 hour seminar highlighting the updates for taxes - by the way, that was the short class. The long one was 2 days. Some things in life never change, but tax law isn’t one of those unchangeable things. For this post I’ll mention some of the tax topics that I think the readers here will appreciate. Apply each topic to your situation.
Partnership returns are due on March 15th now, which falls on a Wednesday this year. By the way, whenever a tax filing deadline falls on a weekend, taxes are due on the following Monday. Because April 15th falls on a Saturday and Emancipation day is observed on Monday, April 17th, the tax filing deadline is April 18th this year for individual filers and businesses filing an 1120. (See IRS for more information.)
Tip: If you have some investment accounts, you will want to wait until the final 1099s are sent out. Last year I worked on several tax returns that we thought had the final 1099s, but a few weeks after they were filed, another 1099 was received. Some of these 1099s were not received until mid-March. It is easier, cheaper, and better to wait to file than to amend a return, but returns can be amended. Regardless of when you file, I recommend you prepare the information you’ll need for your return now!
You have until your tax return filing deadline to contribute to your IRA accounts! For most of us, that is April 18th. Each year my husband and I try to reach our $5,500 limit for IRA contributions. Some years we do and some years we don’t even get close, but we aim for it. Having a few extra months helps me. If you haven’t started contributing to an IRA, I recommend you start with a small amount. That’s how we started. How much do you want to contribute before the tax deadline? You need to know this in order to file your taxes. For specifics, check here.
Tip: Always be aware of phase-out amounts. This means that if you earn over certain amounts, the credit or deduction “phases” out until you aren’t allowed any of that benefit. You can look up the specific phase-out amounts for the deduction or credit you may be wondering about. Just because a deduction is generally allowed, doesn’t mean it will be allowed for you. For example, if you are married, the phase-out range for the American Opportunity Tax credit is $160,000-$180,000. This means that as your income reaches $160,000, the credit will ratably be reduced, and if you make over $180,000, it will be gone. I often hear someone say “that is tax deductible” in conversation. I think to myself that it depends on the taxpayer’s income. Student loan interest is tax deductible unless you earn over the phase-out amount. I won’t list all of them here, but you can easily check them on IRS’s website for any deduction or credit that you are considering.
Will you be receiving a huge refund? Emotionally, it feels great to get a large refund. I understand this! I know I’m swimming upstream to suggest that you adjust your withholding, but a large refund means that you are letting the government hold your money. I try to withhold just enough to get a small refund.
Some people tell me that they don’t have the self discipline to save throughout the year so at least that forces them to save. I get that. However, USING your budget will solve this problem, and you can get off that wagon. I’ll get off my budgeting “soapbox” now.
IRS is trying to protect against this. If you want to read more information about possible fraud, click here.
Identity theft is a big problem right now. I personally have a friend who wasn’t able to file her taxes electronically because someone had fraudulently used her social security to file taxes.
This was an important law passed at the end of 2015. Some tax provisions were made permanentsuch as Child Tax Credit, AOTC - American Opportunity Tax Credit, & Tax Free transfer from IRA to charity.
Other tax provisions were extended. For example, the deduction of mortgage insurance premiums was extended through 2016. This is a nice deduction if it applies to you.
The IRS website is a great resource for tax topics. I hope your tax season goes well!
Q: Tax forms have started rolling in and my mailbox looks like a can of alphabet soup exploded in it! What do I need and where do I start?
A: This is a tough time of year for people who don’t like paper. Starting at the end of January and continuing through March, taxpayers start drowning in paper. Sorting out what’s important and finding a place to store it is a big challenge, and it becomes harder if you don’t know what’s what.
Fortunately, it’s easier to tell these forms apart than you might think. There are only a few types of forms you’ll need to deal with, and most of them don’t even need paper. Here are the four most common tax forms you’ll see and what to do with them!
This is the most common informational form you’ll receive. It’s a statement from your employer that contains your yearly wages, how much tax you’ve had withheld and how much you’ve paid (pre-tax) for things like health care premiums. If you have one job, this may be the only major tax form you get.
It’s also one of the most important forms. You’ll want to keep it with other tax documents until it’s time to file your taxes. This information – your yearly earnings and the amount of tax you’ve had withheld – are the most important factors for determining what your tax bill will be (or how big a refund you’ll get).
This is a series of forms identifying income from sources other than a contract job. Most common is the 1099-INT, which lists interest income. You may get one of these from any financial institution where you have an account.
If you freelance or work as a contractor, you’ll probably receive a 1099-MISC. If you received unemployment or another source of government income, you’ll get a 1099-G. If you had debt canceled this year, you’ll get a 1099-C. There are a few other kinds of 1099 forms, but they all do basically the same thing.
You’ll need to hold on to these forms, too. They document income that you haven’t yet paid any taxes on. You’ll need the amounts on these forms when you get ready to file.
These are relatively new forms that deal with health insurance. Form 1095-A is a statement about insurance purchased through a marketplace exchange. 1095-B is for private health insurance. 1095-C is for employer-sponsored health care coverage.
These forms are important if you get a health insurance subsidy through the Affordable Care Act. If not, you can go ahead and put this form into long-term storage. You’ll be asked when you file if you had health insurance all 12 months of the year. The IRS receives a copy of this form to check your work, so you’ll only need it if issues come up regarding your coverage.
Two forms, the 1098 and the 1098-T, report tax deductible expenses. The 1098 form lists mortgage interest and points on your primary residence, while the 1098-T itemizes tuition and other expenses paid to an institution of higher learning. The 1098-T is used in a variety of places, including claiming the Lifetime Learning Credit and the Hope Credit.
Unfortunately, in order to take advantage of deductions relating to mortgage expenses, you’ll need to itemize your deductions. Claiming the deductions listed on the 1098 requires you to forgo the standard deduction, which for most people turns out to be a bad idea. Unless you have a host of other deductions, or you bought or refinanced your home this year, claiming the standard deduction and filing the 1098 away for later will serve you best.
The bad news is you can’t file your taxes and be rid of the whole mess until you get all of your forms together. You’ll need to keep any W-2 forms, 1099 forms and your 1098-T form together until all of them arrive. Get a manila folder or a document envelope to keep them all in the same place. Keep that folder somewhere safe, and as soon as possible, file your taxes so you can put it into storage. Keep your returns for at least 3 years after you file. A paper copy of last year’s tax return in your filing cabinet can make a world of difference!
How do you keep up with the paperwork requirements of your tax return? Have a magical filing system? Share your best organizational strategies with us in the comments!
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This morning was hard to get up. My husband's alarm went off and I woke up to use the bathroom. My body felt sore. I felt the effects of the cookies, bacon, and chocolate covered popcorn, which I ate yesterday. I felt cold as soon as I got out of my bed. I wanted to go back to sleep. I felt gravity pulling me back to my warm bed. I thought of all the work ahead of me today. Except for the bathroom, every room looks like it experienced a tornado. Christmas was a busy day for my family. I visited 3 families, attended two church services, and had a sick child. The house was now a disaster zone. This can also happen financially over the holidays.
Somehow, I found the strength to walk past my bed without getting back into it. Somehow, I meditated and planned my day. This was a HUGE victory for me today. I think it was because Christmas gave me the belief that I can change. Seeing friends and family and feeling loved inspired me to keep trying. Experiencing kindness and generosity inspired me to want to keep moving forward. Even though I overspent, I can recommit. Even though the house is a mess, we can restore order one item and one room at a time. Sometimes we don't feel like waking up financially, but every day is a new day. If we mess up and give in to a purchase we didn't plan on, or miss a budget meeting, we can start again any and every day. In the big picture, it's not really going to matter that I spent a few more hundred dollars than I wanted to spend, as long as I keep trying.
During this holiday, several of my friends and family have told me that they want to get on top of their finances. They want to budget. They want to plan for taxes. They want to invest. These friends and family have asked my advice on budgeting and asked what app or system they should use. Some of them face huge obstacles in doing this, so I don't want to minimize how hard it can be to change financially. I will compare it to my experience with exercising.
I started exercising regularly a couple of months ago. At the gym, I am surrounded with healthy and strong people. I think about what they had to sacrifice to build the muscles that they have. It is a long and gradual process, and it can't be faked or sped up. There is no shortcut. I can't just be stronger because I want to be. For the first time, I have been weight lifting with a bar and weights. I started with just the bar and am adding small amounts. I can't just put a 35 pound weight on the bar and lift it. I have to sacrifice, plan, and build up the strength. I have to commit. On Christmas Eve I went to a hard interval training class. The teacher pushed herself and admitted it was hard, but at the end she encouraged us and played inspiring music that talked about getting back up and try again. I left feeling so inspired to celebrate my victories and keep trying.
There is no magical app that will make me in shape or get my friends to budget. It doesn't really matter what app you use. There are a lot of good tools, but there is no magical app that will force us to be disciplined. However, exercising at the gym helps inspire me. I believe I can get stronger.
Consider this blog to be your financial gym. Come here to believe that you can change, and surround yourself with people who are growing stronger physically and believing that they can improve. Happy New Years. Enjoy the holiday!
The first official day of Spring was warm and bright the other day at our house. My kids were so excited to eat outside, and we spent the afternoon enjoying the weather. One of them even complained about it feeling too hot. Lately, Spring Clean-up has started. One of my neighbors was raking his dead tree limbs when I walked by. This weekend my husband trimmed the raspberries, brought in new dirt, and planted peas and flowers.
Spring Cleaning for Your Finances
In Utah, some days it feels like Spring: other days it feels like Winter, but it really is Spring. I invite you to join me in some Spring Clean-up of financial records and habits.
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The last day to fund a either a Roth or traditional IRA is April 15–the day personal tax returns are due. For the 2015 tax year, you have until Friday, April 15, 2016 to set up an IRA account or to contribute 2015 funds into your account. For the 2016 tax year, the last day to contribute 2016 funds is Monday, April 17, 2017. If you contribute to an IRA between Jan. 1 and April 15, you must clearly designate the year for which you are contributing.
Individual retirement accounts are excellent retirement savings tools. In addition, for traditional IRAs, all or a portion of your contributions may be fully tax deductible. Consequently, many taxpayers make last-minute additions to their IRAs to reduce their tax burden for the recently ended tax year. To take advantage of this option, it is important to know the deadline to fund your IRA.
The 2015 tax year maximum IRA contribution is $5,500; it’s $6,500 if you're 50 or older. The contribution limits are the same for the 2016 tax year. Don’t miss the opportunity to take control of your retirement, open your Roth or Traditional IRA today.
Should you have any questions about your IRAs or if you want to open an IRA please call James Aoki, our Financial Planner, at 801.627.8732.
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1 TurboTax $25,000 Payday Sweepstakes. NO PURCHASE OR FINANCIAL DISCLOSURE NECESSARY. Open to legal residents of the fifty (50) United States or the District of Columbia, 18 years of age or older at time of entry. Void in Puerto Rico and where prohibited by law. Sweepstakes ends 2/18/16. Subject to complete Official Rules and all applicable federal, state and local laws. For Official rules including odds of winning, alternate method of entry, and prize descriptions, visit the Official Rules. PRIZES: One (1) Grand Prize: A check for $25,000. Retail value, $25,000. Ten (10) First Prizes: A check for $1,000. Retail value, $1,000 each. Maximum retail value of all prizes is $35,000. The odds of winning a prize depend upon the total number of eligible entries received by the end of the Promotion Period. SPONSOR: Intuit Inc., 7535 Torrey Santa Fe Rd, SDG-2A-03-22H, San Diego, CA, 92129.
© 2015-2016 Intuit Inc. All rights reserved. State filing charges apply. Limited time offer for TurboTax 2015. Terms, conditions, features, availability, pricing, fees, service and support options subject to change without notice. Intuit, TurboTax and TurboTax Online, among others, are registered trademarks and/or service marks of Intuit Inc. in the United States and other countries. Other parties’ trademarks or service marks are the property of their respective owners.
When it was first passed, I didn’t pay a lot of attention to the Affordable Care Act (ACA) or more commonly known as ObamaCare–which includes the Patient Protection and Affordable Care Act, and the Health Care and Education Reconciliation Act. The .pdf of this act is 974 pages of law, so this little post will not attempt to be a comprehensive summary of it. No, this is my family’s experience with it.
The first change that we noticed after the law went into place was that the amount deducted out of my husband’s paycheck for health insurance doubled in September 2014. Since our health insurance was provided through my husband’s employer, and the cost was still very reasonable, we continued on without any changes until July 2015.
We had health insurance provided through Ty’s employer until one month after his position was eliminated. Because health insurance was one of the major issues that we faced during our unemployment period, I started becoming familiar with the ACA as I depended on our insurance agent to guide me through finding health insurance. Since then, I’ve taken a class about the ACA and I continue to learn more about it in preparation for tax season.
1095-A: if you went through the Marketplace for insurance
1095-B: if you bought directly through a health insurance provider
1095-C: if you were covered by an employer who provided health insurance coverage referred to as “self-insured coverage”
I hope my experience helps your family make the best decision you can make. Please share your experience and help us all navigate through health insurance related issues. Every time I read the ACA or talk to someone about their experience, I learn something new about it. For more information, go to the IRS.
Compiling everything you need in order to prepare your federal income taxes is often a bigger challenge than actually doing them. Though the process of locating forms and documents may feel overwhelming, it really just requires knowing what you need, and an organized approach to hunting and gathering.
Obtain the Right Tax Form
Make sure you get the right tax form for your individual situation. Many people will use the same one they used for the previous year, but if your circumstances have changed, you may need to use a different form. The options for most employed individuals are the 1040EZ, the 1040A, and the 1040. To know which is right for you, visit the IRS website (where you may also download the appropriate form) at www.irs.gov.
Gather Personal Identification Information
Of course you will need to know your own Social Security Number, but you may need to know a few others as well. These may include those of your spouse, children, childcare provider, and anyone to whom you pay alimony.
Gather Income Information
Your next task is to collect all of your income information. Depending on where you derived your income, you will need documents for:
If you plan to itemize your deductions, make sure you account for everything. Depending on what you are able to deduct, you’ll need to have records for such outgoing expenditures as:
If you have to scavenge for each necessary item, make a commitment to keep good records from this point forward. It will make this time next year a much less demanding experience.
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