Going All In On Itemized Deductions

Since being married, my wife and I have always been able to itemize our deductions.  Between mortgage interest, property taxes, and state taxes, our itemized deductions have always exceeded the standard deduction amount.  This has been great come tax time.  But, it looks like the ability for us to itemize is coming to an end.

As such we’re going all in this year.

Why Itemized Deductions May Not Happen After This Year

Over the past couple of years, I’ve noticed that the gap between our itemized deductions and the standard deduction has gotten smaller. The main culprit is our mortgage interest.  We are just over five years into our fifteen year mortgage.  Each month a bigger chunk goes toward principal and less toward interest.  In the grand scheme of mb-201403stacksthings, this is fantastic, but it definitely changes strategy when it comes to itemizing.

I’ve calculated that if nothing were to change, we’d end up claiming the standard deduction beginning with our 2016 taxes.  I’ve seen this day coming, so we’ll be doing a couple of things to not only keep the ability to itemize, but maximize the amount.

How We’re Maximizing Our Itemized Deduction

First, we’ll pay our winter property tax in 2016.  The tax bill comes in November and is due in February.  Typically, we pay right around the due date, so that we keep our money in our pockets for the longest possible amount.  This year, we’ll make our payment before the end of the year.  Since we paid last year’s winter bill as well as the summer bill in 2016, we’ll have made three payments this year.  Since the deduction is based on the year you make the payment, this will work in our favor.

Second, we’ll make our January mortgage payment in December.  This means that we’ll make 13 payments this year.  Again, since the amount is based on the date you actually make the payment, we’ll get the extra amount in interest on this year’s taxes itemization list.

That’s cool!

Moving Forward

Looking ahead, we certainly won’t be able to itemize next year.  Which is fine.  I’m hearing that if Trump gets his way with some of his tax plan changes, the standard deduction amount would be going up.  This means that we likely wouldn’t have been able to itemize anyway.

So, the timing couldn’t have been more perfect, as least on how things are looking today.  You never know how things will change, of course.  Still, for now it looks like we’ll end up with a few hundred extra dollars in our favor when it comes time to calculate our 2016 taxes.

Readers, what tax strategies are you employing for the end of the year?  Are you doing anything special because of Trump’s tax plan or are these things you might do otherwise?  Let me know in the comments below.


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Tax Basics For Your Small Business

Tax law is very complicated, especially for small businesses. Employers are required to collect income withholdings from their employees, and there’s a self-employment tax for individuals who work for themselves. It doesn’t matter what type of business you’re operating (with employees or without, and even freelancing), the IRS demands that you pay. If you don’t pay you’ll face penalties and, in some cases, criminal charges.

The following lists the different types of taxes your business may have to deal with. Keep in mind, tax credits can help you lower your effective tax rate. The ADP SmartCompliance tax credits module has a database of more than 3,000 incentives and can help you claim and keep all the credits available to you. Achieving the lowest possible tax rate is complicated (less so when you outsource the effort), but the savings are worth it. At tax time, your business has two goals: be 100 percent compliant in order to avoid financial penalties/fraud charges and save money.

Payroll Taxes aka Employment Taxes

If you have employees, you absolutely must collect withholding tax. The IRS calls these tax responsibilities Employment Taxes. Every check is subject to withholdings, regardless when an employee is paid (weekly, bi-weekly, etc.). This money is deposited in a withholding tax fund until tax time, which is when it’s paid to the IRS.

The following taxes must be collected from every employee and yourself. Use the IRS’s withholding tables to determine how much to hold back for each fund.

  • Federal income tax
  • Social security and Medicare

Here’s a warning, you shouldn’t ignore: do not borrow against your withholding tax fund. If this money can’t be paid back, the IRS will consider you a criminal. In the eyes of the government, employers who borrow from saved employment taxes are stealing from their employees. You will be prosecuted.

Annual Income Tax Return

Excluding partnerships, all businesses must file a tax return. Partnerships should file an information return and individual returns but, otherwise, businesses should file a tax return. Your employee’s taxes are paid through the withholding fund, but business taxes are paid out of pocket. You must pay your income tax as-you-go, just like your employees. Sometimes, you can opt to pay an estimated tax and this doesn’t require as-you-go payments.

FYI: It’s on this form that you will include your tax credits.

Self-Employment Taxes

If you don’t have employees but you’re operating a business, you’re obligated to pay self-employment taxes at the end of every year. You can opt to pay as you go, or you can pay at the end of the year when you file. Your tax payments are important because they contribute to your financial future, such as your ability to collect social security.

You may be able to write off some of your business expenses, especially if you paid sales tax on certain items.

In general, self-employment taxes must be paid on any received payments that weren’t already subject to payroll taxes. This includes:

  • Home-based business income
  • Freelance work income
  • Independent contractor work
  • Untaxed earned income
  • Business income, unless taxes are already paid

Excise Taxes

Not all businesses have to pay excise taxes. If you meet the requirements, you’ll be asked to file a specific form and pay the resulting tax. The IRS lists the following as examples of excise tax:

  • Environmental taxes
  • Communications and air transportation taxes
  • Fuel taxes
  • Tax on retail sale of heavy trucks, trailers, and tractors
  • Manufactures taxes on sale or use of a variety of different articles

There you have it: the taxes you may or may not be subject to. This is a very basic look at business taxes. You absolutely must dig deeper to ensure you’re not subject to penalties because you made a mistake. The best way to ensure safety during tax time is to educate yourself and follow the advice of your tax accountant.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

If You’re Paying More In Taxes, You Might Get Little Sympathy

I read a post on another one of my favorite blogs recently that rubbed me the wrong way a little bit.  I’m not going to point it out because I don’t think the post was written with the intent to get anybody upset.  Plus, it actually dovetailed into some other advice that was practical and useful for many.   But it still gave me enough pause that I wanted to vent a bit.  The post started with the author complaining that he’s paying more in taxes than most.

Professional Blogger

Some background first.  The is a professional blogger who writes a lot about his profession.  I can tell that he’s very knowledgeable, and I would wager that he is very good and very successful at what he does.

As such, I think he probably earns quite a good living.  Which, just to make very clear, I am 100% fine with.  People that do good work and are compensated well for it, I really have no problem at all with.

However, where it went a little off course was that he just jumped right into the fact that he was paying a lot of taxes, and glossed right over what I consider the even more important part of it.  What’s that?  It’s simple.

He’s  paying a lot more in taxes because he’s making a lot more money.

Mo’ Money, Mo’ Taxes

See, when you shift the focus of the sentence, you could easily look at the “making more money” aspect, in which case, who would complain about that?  Nobody.  Nobody at all would complain about making more money, right?

mb-2015-06-chartBut, if you’re paying more in taxes, aren’t you, in essence, complaining about making more money?

Now, I know that tax law is complicated and there are tons of factors that go into what people pay, so I know that people can make the same money and pay wildly different amounts in taxes, and vice versa, but I think it’s a safe bet to say that someone who pays $5,000 in taxes is likely making a lot less than someone who pays $25,000 in taxes.

See, it’s all about perspective.  You’d probably never hear the person that pays $5,000 in taxes say “Oh, wow, I wish I was paying $25,000 a year in taxes.”  That would sound almost silly, right?

Would You Sacrifice Income For Taxes?

But, what if, for the sake of argument, the two were making $50,000 and $250,000 respectively.  Would you think it crazy if the person making $50,000 thought “I wish I was making $250,000 a year.”  Of course not, who wouldn’t want that?

However, aren’t they really saying the same thing?

Let’s face it, everybody would like to pay less taxes, sure, I get that, but in the roughly 20 years I’ve been filing returns, it’s a pretty safe bet that if I’ve paid more taxes versus the prior year that I’ve started off by making more money.  I mean, you can’t really have it both ways, so which way would you rather have it, paying more and making more or paying the same but foregoing your growing income?  That could very well be the easiest question ever asked on this blog.

So, the point is that people can complain about paying taxes, but in many cases, aren’t you potentially complaining about making more money?   Have you ever heard of someone making such a complaint?  Well, if you’ve heard someone complaining that they’re paying tens of thousands of dollars in taxes, you may in fact have.

The post could have been nullified a bit.  Perhaps  starting things off with “Our income was good last year, but even so, it still sucks paying $<amount> in taxes.”  Acknowledging the other side might have earned a tad bit more empathy from me, anyway.

Readers, what do you think?  Do you see complaining about paying more taxes almost as complaining about making too much money?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Top Things to be Aware of Before Filing an Tax Extension

The tax deadline is quickly approaching, but if you haven’t filed your taxes yet, then chances are you may need to file an extension instead. As such, there are at least five things you need to be aware of before you file your request.

You Can E-File Your Request

That is correct! You can skip the hassle that comes with filing your extension on paper, and file directly on your computer. E-file extensions are guaranteed to be received by the IRS within 48 hours from the time you file, and you receive an email confirmation once it’s been handled. Forget waiting in line at the post office or the hand-wrenching agony of wondering if your extension has been processed. E-filing is the smart choice.

Tax Extensions Can Be Denied

When you file your extension, be careful not to make any mistakes while filling out Form 4868. Small errors and inaccuracies are enough to get your extension denied by the IRS, and you’ll be subject to a possible failure-to-file penalty. That’s why it’s important to read carefully and take your time when filling out Form 4868. Rushing will cost you more money and add unnecessary stress to your life.

Taxes Must Be Paid by April 15th (April 18th this year)

While you can postpone filing your taxes to the IRS, you cannot postpone payment! The extension you are filing is only for your paperwork, not the money you owe the government. You will be required to send in your estimated tax bill along with the payment on April 15th. Non-payment will subject you to tax penalties and interest.

If you are unable to pay your tax bill, you may want to consider using an installment loan to cover the cost of your taxes. Installment loans are a safe, affordable, and can be repaid over time with a set number of payments.

You are Required to File Both State and Federal Extensions

If you are filing a federal extension, chances are you’ll also need to file a state extension too. The requirements to file a state extension vary from state to state, so you’ll have to find out the requirements by contacting your state tax authority. Some states provide their citizens with a six month automatic extension, while others require you to request it.

Deadline is October 15th

Once you file your extension request, you have exactly six months to prepare and send in your tax paperwork to the IRS. There are no exemptions, and no excuses if you miss this deadline once your extension is granted. October 15th is the deadline so mark it on your calendar and make sure you’ve filed your paperwork on or before this date.

If you are going to file an extension, it’s important that you be prepared. Be aware of the above information, and if you can file your taxes now instead of waiting.

Will you be one of the Americans requesting a tax extension this year?

Tax detail isn’t my area of expertise, so this was graciously contributed by a friend of Money Beagle.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.