Do You Have a Tax or Budgeting Question?
I worked as an accountant for years. Feel free to ask any question you like. Just reply to this email with your question and I will answer it in an email like this one. Plus, this coming tax season, I am planning to give tips to help you save a bundle of money by preparing your own tax return.
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She needs to file her own tax return. She should receive a W-2. You can still claim her as a dependent though. Just make sure that she marks on her return that someone else is claiming her. Since she is in college, be sure to take any possible education tax credits on your tax return.
Most states in the country require you to pay personal income tax and file a yearly return. The states that don’t have an income tax are: Alabama, Arizona, Florida, Illinois, Indiana, Pennsylvania, South Dakota, Tennessee, Texas, and Washington. If you live in those states, you don’t need to pay state income taxes and there is no return to file. In all the other states, there is an official income tax and you would need to file a return to see if you owe anything.
There are only two ways to fix a shortage of money, earn more or spend less. If you have already cut back as much as you can on your budget, then you need to earn more money. In your situation, I would really recommend that you do everything you can to get a job. The economy has been improving lately so there are more job opportunities now than even a year ago. First, set up a professional looking resume and then, apply for jobs that you can do.
If you have children at home that would need childcare if you went to work, check with the social services in your state to see if you can get help paying for childcare. Or perhaps your husband could take care of the children while you go to work.
You should register as a business. Most states have rules requiring you to have a business license when you are earning money on the side. But that doesn’t mean you need to set up a corporation or anything like that. You can just operate as a sole proprietor. It’s always better to be on the up and up with your state so that you don’t run into problems later. Be sure to check with your state licensing agency to see what the rules are.
For Federal taxes, you should be reporting the income. Plus you could benefit from deducting your expenses against that income. There are some significant tax benefits to setting your business up as an entity other than a sole proprietor. The entity choices are Corporation, S-Corporation, Partnership, or LLC. The LLC or Limited Liability Company is a unique structure that protects you legally, but also allows you to choose what kind of tax treatment you want to do. That means you can still treat it like a sole proprietorship even though you get the legal protection.
I usually recommend setting up as an LLC with the tax treatment of the S-Corporation. The S-Corporation treatment has some great benefits, but it will require a separate tax return to be filed. The Sole Proprietor treatment doesn’t require a separate tax return, but it does require you to pay a self-employment tax.
If you are filling as married filing jointly and are both over the age of 65, you have to file a return when taxable income is $23,200 or if you earn at least $400 of self-employment income. If you have had withholdings and could get a refund, you must file a return to get the refund.
If the prize amount is $600 or more, the company will send you Form 1099 Misc or W-2G. This must be reported on your tax return. Include this amount in calculating your taxable income to see if you need to file. If your prize was valued less than $600, you still have to include the amount on your return, but you won't receive a form.
If you are supposed to file a return and you don't, the IRS can file for you based on what limited info they have. This usually turns out bad for you. So make sure you know whether you should be filing.
Yes, you can file last year's and this year's returns in the same year.
If you are going to get a refund, you won't have to pay a penalty. But if you owe money, you will get a penalty plus interest on the balance due. It's a terrible idea to file late if you owe money. The penalties can be enormous.
If you wait 3 years to file, you will lose any chance to get a refund. You must file by 3 years from the original due date to get your refund.
I once filed a return for a woman who hadn't filed one of her returns for 10 years. The IRS had filed for her and had billed her for $25,000 in tax. When I prepared her return, she ended up with a refund of $10,000 instead of owing the $25,000. But unfortunately, she couldn't get her refund because it had been more than 3 years since the return was due. She basically threw away $10,000. Don't end up like that, whatever you do.
It depends on how complicated your tax situation is. If you just need to do a personal tax return on Form 1040, then you could easily prepare your own return on a tax program like Turbo Tax.
Even if you itemize your deductions, you can still do it yourself. This is a good way to save money since accountants often charge enormous fees for something that only takes them a half hour to do. One tax firm that I worked for charged a client $450 for a tax return that only took 30 minutes to prepare. It's a complete rip off to hire an accountant if you can just pay $50 or so to Turbo Tax and do it yourself.
I plan to provide some tips during this next tax season to help you prepare your own return using software such as Turbo Tax. That way you will be able to save money on tax preparation fees.
The more things you can do for yourself, the better your financial situation will be.
Many people are afraid to do their own tax return because they might make a mistake that gets them in trouble or doesn't give them as much money back. That's why I like Turbo Tax. It asks you questions as you go to make sure you have thought of everything that is deductible. It also offers free help from professionals if you have questions along the way.
If your tax situation involves investment income, self-employment income, or more complicated situations then it might be in your best interest to consult your tax accountant. However, Turbo Tax and other tax prep software can still help when there are businesses or investments involved. You would just need to buy the upgraded version of the software. Many people prepare their own personal and business returns. It's not as complicated as it sounds. Believe me. I know people that are not accountants that prepare their own returns each year.
I can prepare just about any kind of return out there, but I still use Turbo Tax for my personal return because it is so easy to use. I even use it for my business returns. This blog is one of my businesses and I set it up as an entity called an LLC (limited liability company). I elected to use the S-Corporation treatment for my LLC and I use Turbo Tax to do the return each year.
For those of you who are interested in learning how to start a home business, stay tuned because I am working on creating a free class that will teach you the exact steps to start a home business. And yes, starting a home business can make you rich. (Some time I will tell you my secret strategy on which state to register an LLC in to get the best possible legal benefits available. And guess what? It's not in North Carolina where I live and not in Washington State, where I came from.)
I love this question because it is a problem many people face. Here's the thing, Christina, you've probably heard of the phrase,"All work and no play make's Jack a dull boy." Well, when you are always on a strict budget and you can't ever splurge a little, it can be tough on the partner who enjoys spending at times.
It's true that working hard and sticking to the plan will get you to your goal, but for most people it's too hard to be that perfect all the time. So, I recommend a compromise.
Set aside some money in your budget for enjoyment. It doesn't have to be much. But make sure your husband gets part of that money just for him. Let him know that he can spend it on whatever he wants and make sure he gets that amount each month. This will make things easier for both of you. You can still stay on track with your plan if you cut back in other areas of spending. Find 87 ideas on ways to cut back your expenses here.
Here's another helpful tip: Don't take him shopping with you if he is an impulse spender. Whenever there is a partnership between a person who is frugal and a person who spends too much, one of you has to be the shopper. The other one has to stay home every time. Here are 13 tricks to stop impulse shopping right now.
You can never claim your spouse as a dependent, but you can take a personal exemption for your spouse if your filing status is married filing jointly. If you file as married filing separately, you can only take a personal exemption for your spouse if he doesn't have any income.
A personal exemption is just as good as a dependent. They both provide the same benefit. The personal exemption for 2017 is $4,050. That means your taxable income is reduced by that much.
Yes, you can donate them all in one year. But first, you need to make sure that the donation is going to a real charity. They should be able to provide you with a receipt and proof that they are a legitimate charity.
Second, you need to check your prior tax return to see if you itemized deductions or took the standard deduction. If you don’t itemize, you can’t deduct the car donation. Wait until you can itemize before you donate.
Next, before you decide when to make the donation, you might want to estimate your tax refund for the year based on what you already know. The best site for doing that is e-file.com. It’s completely free to use their tax refund estimator.
My philosophy is that you only want to donate this year if it will help you get a bigger refund or reduce what you owe. Otherwise, save it for the next tax year. This will maximize your financial gain.
If you need more deductions to increase your expected refund or to reduce your tax liability then you definitely want to donate the cars this tax year (or clothes, toys, household items, etc.). If you don’t need more deductions, then save it until you do. As long as you donate the car by the last calendar day of the year, you can still count it on your tax return. The IRS has a special publication just for car donations if you want to read up on it.
But hold on…you don’t get $500 more in a refund just because you value the car donation at $500! The amount of additional refund you get is LESS than the donation value. Why? It’s because you are deducting the $500 from your income and your income is being taxed at a certain percentage.
For example, if you are in the 15% tax bracket and you deduct the $500 donation, this will represent an additional tax refund of 15%* $500 = $75 more refund. That’s pretty insignificant, right? Maybe you would be better off selling the cars for what you could get for parts. Can you get more than $75 by selling the parts of the car on Craigslist? Can you sell the car as is to someone who can fix it up? This is my recommendation. Sell the car for more than what you can get back on your tax return.
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The Modern Mom’s EPIC Guide to Easy Budgeting! 28 Page Workbook with 87 ideas to reduce expenses, 14 beautiful worksheets, 7 bonus lessons, and full, easy-to-follow instructions. Includes top advice from a professional accountant and university instructor.