I’ve written about tax-related crime for years, and have always offered this fail-safe rule to avoid tax scams: If you ever receive a call from the IRS about back taxes or any other money you supposedly owe the government, hang up because it’s a scam.
There was something comforting about that advice — maybe even a little satisfying. I mean, who secretly doesn’t want to hang up on the taxman? But it seemed no amount of repetition was enough to stem the tide of tax-related scams, and no matter how many times I wrote about that simple, satisfying tactic, the message never reached the people most vulnerable to such shenanigans.
Taxpayers still got taken in by scam artists dialing for dollars every day. It didn’t matter if the crook posed as an IRS employee, or if he ventured into the truly absurd with a claim that he worked for a collection agency that bought back tax debt from the agency. It was wacky stuff, the IRS selling debt. But it was wackier than that …
All you had to know was this: The IRS did all its own collecting, and it conducted all its business via snail mail. It never called. The advice was solid: Let your spirit fly! Do or say whatever you want when the IRS called about back taxes or an audit because it wasn’t them!
You know where I’m going with this, right? Yep, leave it to our friends in Washington to take a bad situation and make it worse.
Earlier this month, IRS chief John Koskinen announced that the IRS would be immediately outsourcing certain debt collection activities to one of four debt collection companies: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, New York; Performant of Livermore, California; and Pioneer of Horseheads, New York.
You read that right. The IRS is outsourcing debt to collection agencies.
When this was initially announced last September, I was convinced that it was a joke—and a pretty good one. Extra points for coming up with something more or less unthinkable— since truly, debt collection agencies could not be a more problematic solution to the IRS’s back tax problem — but it turns out it wasn’t their joke.
You can thank Congress for this epic face palm. Although it didn’t get much attention when it passed in 2015, one of the provisions of the Fixing America’s Surface Transportation Act required the IRS to hire private-sector debt collectors to pay for it.
Since consumers are going to have to handle this year’s post-tax season a little different as a result, here are some telltale giveaways that you’re getting scammed and should hang up:
You get a call from a collection agency not listed above. Only those four agencies are approved for these collections.
You do not owe back taxes.
The person calling you has asked you to send money somewhere other than the IRS. Even though the four collection agencies are making the call, the check goes to the Fed.
The caller asks you to pay in the form of gift cards, prepaid cards or asks you to wire funds.
You are asked for any information that can be used to conduct a financial transaction: Social Security number, bank account, credit or debit card number. (If you do turn over personal information, keep an eye on your credit for signs of identity theft. You can view your free credit report summary on Credit.com.)
If you are low-income, there may be other options for you. Contact the IRS to find out what they may be before discussing your debt with a collection agency.
By now we’ve gotten pretty good at surviving the ridiculous decisions made on Capitol Hill, but this latest one is a doozy. Happily, my old advice still stands. If you get a call from a debt collector, don’t engage until you verify the debt. If it was a legit collector, they’ll furnish written verification within five days of calling you, and here’s what to do when that happens.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
Federal government spending is closing in on $4 trillion a year. Even though a new administration is promising a wave of change, it’s still going to require a lot of money to keep the country running. A big chunk of that money comes directly from you, the taxpayer. The government gets most of its spending money via tax revenue, including $1.53 trillion via individual income taxes. Corporate income taxes, customs duties and excise taxes are other big sources of cash for the government, as are Social Security and Medicare taxes and borrowing.
Those numbers are almost too huge to comprehend. Whether your tax bill is large or small, it probably seems like a drop in the bucket of total government spending. (Here’s how to deal with a hefty tax bill.) To help give people a better idea of where their tax dollars actually go, the National Priorities Project put together a taxpayer receipt that breaks down what the government does with your money. (The White House releases its own taxpayer receipt that categorizes spending in slightly different ways.)
That data can give you a good idea of how much of your tax dollars are flowing into specific spending categories. For example, the National Priorities Project’s data show the average taxpayer in the U.S. paid $12,992 in federal income tax in 2014. The bulk of those dollars went to only a handful of spending categories. (These are five items you should pay taxes on but aren’t.)
Those categories are fleshed out in a report from Pew Research Center, which breaks down where the government spends your money. On the following pages, we’ll use data from both the National Priorities Project and Pew Research Center to put together a picture of where your tax dollars go.
Let’s take a closer look at the 10 main ways the government spends your tax dollars.
1. Defense: 15%
Spending on the military and national defense consumes 15% of the national budget. It’s important to note, too, that this doesn’t count spending on veterans benefits. Our defense spending has increased since 2000. Although spending took a downturn under President Barack Obama, President Donald Trump has signaled he wants to boost it significantly in coming years.
2. Health Care: 13%
There is no escaping health care costs. And incredibly enough, almost an equal portion of your tax bill goes to health care programs as it does to the military. About 45% supports Medicaid, the government’s health insurance program for the poor. The rest funds things like the Children’s Health Insurance Program and consumer health programs.
Overall government health care spending has ballooned over the past 40 years. For comparison, in 1976, spending on health programs accounted for 7% of the federal budget.
3. Interest Payments: 6%
This is basically the maintenance cost we end up spending on our national debt. The national debt is always a topic of discussion, and with the turbulent times over the past couple of decades, it’s risen dramatically. Today, the U.S. has nearly $20 trillion in national debt. And just like you have to pay interest on your credit card and mortgage debt, you’re also paying interest on your share of the federal government’s debt. (How are your interest payments affecting your finances? Get a look at a snapshot of your credit report free on Credit.com.)
4. Income Security: 13%
This category, which eats up 13% of the federal budget, includes retirement and disability benefits for federal employees, job training programs and other similar programs. Among them is the Temporary Assistance to Needy Families program, which provides cash benefits and other support to the poor. In 2013, that program’s spending was $17 billion, the lowest amount since the program started in 1998, according to the Congressional Budget Office — so that’s a promising sign for deficit hawks.
5. Benefits for Veterans: 5%
There are roughly 22 million veterans in the U.S., according to the Department of Veterans Affairs. Spending on benefits for people who have served in the military, including pensions and medical care, has increased steadily in recent years, nearing $100 million back in 2009. That number has gone up even as the total number of veterans has declined, according to data from the National Center for Veterans Affairs and Statistics.
6. Education: 3%
A lot of people would feel better if we spent more on education, rather than defense. But our policymakers seem to be headed in the opposite direction. There have been many cuts to education spending in recent years, while spending on defense has grown. Currently, per Pew’s numbers, we spend 3% of our federal tax dollars on education. A key problem, however, is our spending doesn’t always translate into success.
7. Social Security: 24%
Spending on Social Security is, by a long shot, the single largest expenditure for the federal government. According to Pew Research, government spending on social security eats up roughly a quarter of the entire federal budget. Those costs are expected to grow with the Baby Boomer generation retiring and signing up. This is an area that needs a fix. But it’s known as the “third rail” of American politics — meaning nobody is willing to touch it.
8. Medicare: 15%
Medicare eats up a significant portion of the federal budget at 15%. This is one of those health care-related expenditures expected to continue ballooning in coming years — and one that will require some type of reform to fix. Medicare is, of course, incredibly important for a huge portion of the American population, so it’s not as easy as making draconian cuts.
9. Foreign aid: ~1%
The Pew report doesn’t look at foreign aid specifically and instead counts it as a portion of another category. We’ve taken it out, as it’s one of the most misunderstood elements of the federal budget. Many people believe we spend a lot — the average American guessed 31% of the federal budget — on foreign aid. The real amount? Roughly 1%.
10. Other: ~5%
As noted, we’ve removed foreign aid from this figure. Otherwise, this is the catch-all that accounts for the remainder of government spending, which is roughly 5% of the total. This includes “crop subsidies, space travel, highway repairs, national parks and much, much more,” the Pew report said. So, if you can think of something that wasn’t included in any other category, it’s accounted for here.
When it comes to taxes, everyone knows you have to report your income from a full-time job or side gig. (Of course, not doing so is a common tax mistake.) But the IRS doesn’t stop there — they expect you to pay taxes on all sorts of earnings, including these five things you might be overlooking.
1. eBay Profits
If you sell the occasional item, such as a dress you no longer like or a collectible from your childhood, you likely don’t need to report your eBay income on your taxes. Because the items you auction off are probably selling for less than you originally bought them for, you’re taking a loss and the IRS views the transaction like a garage sale.
But if you sell items regularly — auctioning off 200 items and earning more than $20,000 in sales each year — your income is taxable. PayPal will issue you a 1099-K form with your earnings for the year in addition to reporting your income info to the IRS.
But even if you don’t meet those numbers, you may still have to pay taxes on eBay sales. If you deliberately buy items to resell on eBay or manage an inventory, the IRS considers your eBay store to be a business and will tax your profits as income.
2. GoFundMe Campaign
Crowdfunding sites like GoFundMe are increasingly popular, raising money to help people with everything from medical bills to paying off student loans. But when it comes to taxes, crowdfunding can be extremely complicated.
According to GoFundMe, donations made through the site are considered personal gifts and are usually not taxable as income.
But the key word is usually. There are exceptions. In 2015, a cancer survivor who received $50,000 in donations got a tax bill for more than $19,000. It gets even more complicated if you collect donations on behalf of someone else. Even if you transfer the money to them, you could be on the hook for paying taxes on the entire amount.
Before creating or cashing out a GoFundMe campaign, talk to a tax professional about what you can do to ensure the IRS views the donations as gifts rather than income. Otherwise, you could end up having to pay taxes.
3. Free Items
Items you receive free from companies can be a tricky area. If they’re true gifts, free things are not taxable. But when there is an exchange of goods and services — such as a company giving you a product in exchange for a review on the item — the IRS considers it bartering and the value of the sample is taxable as income.
This is an important distinction, especially for bloggers and social media influencers who often receive gifted items from companies. While the monetary income from your activity may be small, the value of samples can add up quickly. You may have to pay taxes for the full amount.
4. Forgiven Debt
If you have debt your lender forgave, the amount could be taxable as income. If you repay your federal student loans with an income-driven repayment plan, for instance, part of your balance may be forgiven if you meet the program’s requirements. That’s great news, but the discharged balance is taxable as income.
For example, say you were eligible to have $10,000 forgiven because you met the requirements of your income-based repayment plan. While you no longer have to make payments on your loan after it’s been forgiven, the IRS will tax you on the discharged amount of $10,000, and you will be sent a 1099-C Cancellation of Debt form. (Here’s what to know if you get one.)
Exceptions to this rule are loans discharged through Public Service Loan Forgiveness, Teacher Loan Forgiveness and debt eliminated through bankruptcy. In those scenarios, you do not have to pay taxes on the forgiven amount.
5. Fantasy Football
Fantasy football is a $3.6 billion industry, one in which the average player spends nine hours a week strategizing. It’s a fun activity that can consume players and take over office spaces. But whether you’re a serious participant or a casual player, fantasy football can have surprising tax implications.
The IRS requires individuals to report winnings from gambling, prizes and hobbies. If you win the office pool or an online league, your prize money is taxable as income.
If your winnings are more than $600, the league or host should send you and the IRS a 1099-MISC form. But even if your winnings are below that threshold and you don’t get a 1099, you still need to report that income on your taxes.
Keep in mind: You may be able to deduct some of the associated costs, too. If you won $1,000 but it cost $500 to enter, you can report only the net profit.
Find Out If You Need to Pay Taxes
When it comes to getting their share of your income, the IRS doesn’t play around. Besides the money you earn from your job, you may owe money for other overlooked activities. If you’re unsure about what to include in your tax return, talk to a tax professional to avoid any penalties or fees.
If you’re single and under the age of 65, you have to file taxes if you make more than $10,350 a year. If you’re married, filing jointly and your household income is more than $20,700, you also have to file a return.
If you make less than those annual amounts and are a dependent on your parents’ taxes, you do not need to file an individual return.
If you’re still not sure if you have to file a return, the IRS recently launched the “Do I Need to File a Return?” tool. It’s a questionnaire that takes about 10 minutes to complete. Once you’re done, the IRS will give you a recommendation on filing a return.
Important Tax Deadlines for 2017
You were probably always taught that the tax filing deadline is April 15. Though that’s normally true, this year is an exception. In 2017, you have three extra days to complete your taxes because tax deadline is April 18.
This year, April 15 is a Saturday, and the IRS doesn’t allow the tax deadline to fall on a weekend. The following Monday is Emancipation Day, a legal holiday in the District of Columbia. The IRS closes their offices that day, so the whole nation gets an extra day.
How to Request a Tax Extension
When learning how to do taxes, remember that if you’re going through a hardship or will be unable to file your return by April 18, you can get an extension. By filing a tax extension request, you can get up to six extra months to complete your return.
An extension can give you a reprieve in filing your return, but if you owe any money to the IRS it’s still due by April 18. If you miss that deadline, you could owe late fees and penalties. (Unpaid taxes can also damage your credit report.)
Documents You Need to File Your Taxes
When you’re preparing to do your taxes, collect the necessary documents ahead of time. It’s common for forms to trickle in slowly, so keeping a folder specifically for tax documents can help you track everything you need.
Here are some common documents that you may need to file your taxes:
W-2: A W-2 is a form your part-time or full-time employer sends you. It shows how much money you made in the past year and how much you paid toward taxes, Social Security and Medicare.
1099: If you earned more than $600 by freelancing or working a side-gig such as driving for Uber, your client will send you a 1099 form. The form shows how much you made last year, but unlike W-2s, no money was taken out for taxes.
Other income records: If you worked a side hustle but made less than $600 for a client, you won’t get a 1099 but you still have to report that income. Keeping a spreadsheet of your earnings or having a separate business bank account can help simplify tax time.
1098: If you made interest payments on your student loans, your lender will send you a 1098 form saying how much interest you paid last year.
1095-A: If you got health insurance through Healthcare.gov, the government will send you a 1095-A form. This says you had qualifying coverage for the year.
Interest earned: If you earned interest from any savings accounts over the year, your bank will send you a form. This will show how much interest you gained.
Bank account routing number: To get your tax refund as quickly as possible, it’s a good idea to sign up for direct deposit when you file your return. To do so, you’ll need your bank account number and your routing number.
Expenses and receipts: If you landed a new job, moved to advance your career or attended business conferences, you can deduct associated costs. Make sure you keep receipts to use when you do your taxes.
How to File Taxes: Which Method?
While you can certainly do your taxes the old-fashioned way, using the paper forms can lead to errors. There are many options that can help you file your taxes more accurately:
Tax software: You can file your taxes electronically using available programs such as TurboTax or Credit Karma’s free filing tool. Some options are free but others have a fee, so choose a program based on your preference. If you make less than $64,000, you can use the IRS’ free filing tool.
VITA sites: If you need more hands-on aid and make under $54,000, you can get free in-person help. Try using an IRS-trained volunteer at a Volunteer Income Tax Assistance (VITA) site.
Hire a tax professional: When doing your own taxes is too confusing or complicated, hire a tax professional. They can handle your taxes for you and ensure you get the maximum refund available.
When choosing which option is best for you, consider how complex your taxes are. If you’re employed and have a side-hustle, but don’t have a business partnership or many investments, using software may be more than enough.
But if you run your own business, own a rental property or have investments, your taxes may be complex enough to warrant professional assistance.
Know Your Deductions and Credits
In the early stages of your career, you are unlikely to have enough deductions to make it worthwhile to itemize. Instead, you can claim the standard deduction of $6,300 and reduce how much of your income is taxable.
But you may be eligible for certain credits or deductions, even if you don’t itemize. Credits reduce what you owe in taxes, while tax deductions lower your taxable income. Both are valuable items to consider when doing your taxes and can help you get your maximum refund.
American Opportunity Tax Credit (AOTC): The AOTC is worth up to $2,500 per year and includes money paid for tuition and other related expenses.
Charitable Donation Deduction: If you donated money or items to a nonprofit organization, you may be able to deduct the value on your taxes.
Earned Income Tax Credit (EITC): The EITC is a valuable credit that 20% of eligible people miss out on because they don’t claim it on their taxes. The average EITC recipient gets an average of $2,482 by claiming the credit — you could be eligible if are a low-income earner.
Home Office Deduction: If you work from home or run a business from where you live, you may be able to deduct up to $1,500 on your taxes.
Lifetime Learning Credit: With the Lifetime Learning Credit, you can deduct up to $2,000 in qualifying education expenses.
Student Loan Interest Deduction: If you made payments on your student loans, you can deduct up to $2,500 that you paid towards interest on your taxes.
Tuition Fee Deduction: With the tuition fee deduction, you can deduct up to $4,000 in college tuition and other fees.
When it comes to filing your taxes, you must file both a federal and state return. If you lived in multiple states last year, you need to file a return for each state you resided in.
The only time you do not need to file a state return is if you live in a state that does not charge income tax. There are seven states that fit in this category:
You can submit your federal and state returns using tax software or you can mail in the tax forms. Depending on where you live, where you need to send the forms may change, so check the IRS website before putting them in the mail.
How to Track Your Tax Refund
If you’re eligible for a tax refund, you can track your return’s status and find out when to expect your money by using the IRS’ “Where’s My Refund?” tool. If you opt for direct deposit, you can expect your refund in as little as 10 days after filing.
How Can I Pay My Taxes If I Owe the IRS Money?
If instead of a refund, you owe money to the IRS, you have different payment options. If you use software to prepare your taxes, you can usually pay the money owed electronically through the program.
If you did your taxes on your own or didn’t pay electronically, you can use the IRS payment tool. Just make a payment through your checking account on the IRS website.
If you owe more than you can pay upfront, you can contact the IRS to set up a payment agreement and make monthly installments.
Learning How to Do Your Own Taxes
Figuring out how to file taxes for the first time can be confusing, overwhelming and stressful. Managing the process on your own can be difficult.
Using this guide — and the help of tax software or a professional — can help streamline the process and ensure you handle your taxes correctly.
With April 18 just around the corner, chances are you and your spouse are knee-deep in tax work. Most couples file jointly to take advantage of various benefits but depending on your situation, you may want to file separately.
We tapped Kelly Phillips Erb, a Philadelphia tax attorney who blogs at Forbes, for some pointers on when to do this. (Sadly, love doesn’t conquer all when it comes to the tax man.)
1. When a Spouse Has a Tax Liability
Though your spouse’s liability won’t carry over to you, it could throw a wrench in your taxes if you file jointly, Erb says. “It can make filing taxes complicated because you have to file an injured spouse claim” if something goes wrong. For example, if your husband owed back taxes but as a couple you got a refund and the IRS decided to take it, you’d be prompted to file an injured spouse claim. This may help get part of your refund back.
Your spouse’s back taxes could also impact their credit score if the problem gets bad enough. The government could make a claim on your property until the debt is repaid, which is known as a tax lien. This will show up on your spouse’s credit report and could make it harder for them to borrow money in the future. (You can see how a tax lien and other factors may be hurting your credit by reviewing two of your free credit scores on Credit.com, which are updated every two weeks.)
2. When a Spouse Can’t Be Trusted
“When you file a return, you sign under penalty of perjury,” Erb explains, noting taxpayers vow to report everything to the letter. “If you sign the return knowing they tend not to be forthcoming, you’re putting yourself at risk.”
Erb recalls a client who dealt with this issue for 15 years and “ended up with a liability in the millions she couldn’t pay.” However, she had signed a return with her husband claiming things were just fine. The IRS eventually chased both of them down for the money, even after they separated. “When you get married, you like to think everything’s rainbows and unicorns,” Erb says, but “don’t file if you think they’re not being truthful. Ignorance is not an excuse.”
3. When a Spouse Lives Abroad
“There are some tax reasons why you might file separately, but as a rule, most people file separately for non-tax reasons,” Erb says. However, if one spouse has a different residency — not just between states but in another country entirely — it “might be advantageous to file separately, because depending on the situation, you could possibly lose credits or other tax breaks that you might not want to.”
You’re motivated by a deadline, you’re busy, you’re still getting organized — whatever the reason, you haven’t filed your taxes yet. That’s not a huge deal (there’s a deadline for a reason), but still, waiting until the last minute to file your taxes means you might be rushed. And that means there’s a higher likelihood of making mistakes or overlooking something important.
To help you avoid making a mess of an already unpleasant task, we put together a list of things you should keep in mind as you get ready to face the job you’ve been putting off for months.
1. The Sooner You File …
… The sooner you can get a refund. The IRS says it issues nine out of 10 refunds in less than 21 days.
2. Waiting to File Puts You at Risk
Taxpayer identity theft is no joke. It generally involves someone using your Social Security number to get a fraudulent refund — preventing you from getting yours in a timely manner.
3. If You’re a Tax Fraud Victim, You Need to Prepare a Paper Return
“First, I would definitely contact the IRS, and you should also contact the credit bureaus, and then you would just have to paper file your return if they already e-filed using your Social Security number,” said Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax.
4. The Deadline to File …
… Is April 18. No, that’s not a typo. April 15 falls on a Sunday this year, and April 16 is a holiday in the District of Columbia. So Tuesday, April 18 it is.
5. It’s a Hard Deadline
Your paper return must be postmarked by April 18. An e-file must be submitted before midnight on April 18. Otherwise, the IRS could slap you with fees.
6. But You Can Get an Extension
You can file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, which gives you an additional six months to file.
7. The Extension Is for Paperwork, Not Payment
If you think you’ll owe taxes, you must make your best guess using previous years’ information and an online estimate calculator.
8. Unpaid Taxes Carry Fees …
Interest on unpaid taxes compounds daily from the due date of the return to the date they’re paid in full. The failure-to-pay fee is one-half of 1% of your unpaid balance for each month, or part of a month, up to 25%, until the debt is paid in full.
9. … & Even Affect Your Credit Score
If your unpaid-tax problem gets bad enough, the government may make a claim to your property until the debt is repaid. That’s called a tax lien, and it will show up on your credit report. (You can see how a tax lien and other factors affect your credit by reviewing two of your your free credit scores on Credit.com, updated every two weeks.)
10. Make Sure You Have All Your Forms
“Keep a list of all of your jobs during the tax year,” said Abby Eisenkraft, an enrolled agent and CEO of Choice Tax Solutions. “Some taxpayers receive numerous W-2s (think actors, temps, etc.). Freelancers — you may receive numerous Form 1099-Misc; be sure you received them all.”
11. But Report All Your Income, Even If You Didn’t Get a Form
“Some employers are sloppy and may not issue them to you by Jan. 31 of the following year. Regardless, you must report all of your income,” Eisenkraft said. You can ask an employer for a copy of a missing W-2 or ask the IRS for transcripts of forms you think you didn’t get. Of course, this takes time, so you may need to file an extension.
12. *ahem* ALL of Your Income
“The easiest way to get an IRS notice is to omit reporting all of your income,” Eisenkraft said. “Also, remember that jury duty and prize money (lottery, etc.) are also taxable.”
13. Plan to Wait in Line
At the post office, at your local tax preparer’s office — anywhere that does anything having to do with taxes.
14. Take Advantage of Technology
There are several ways you can file your taxes for free without having to do them the old-fashioned way. Tax software can be a huge help when you’re facing a time crunch.
15. Affordability Is No Excuse
“Many people put off filing their taxes because they can’t pay the full amount,” said Samuel Brotman, a tax attorney and owner of Brotman Law in San Diego. “You’ll cause far more headaches if you don’t even attempt to play ball with the IRS, though.” See: aforementioned fees.
16. Make an Effort to Pay
“It’s in your best interest to file and pay as much as possible by the April 18 deadline,” Brotman said. “If you’re just not ready or able to file by the deadline, make sure you file for an extension. The IRS will automatically grant a six-month extension, giving you additional time to get your taxes in order.” Thinking about paying your taxes with a credit card? Read this first.
17. Or Get a Payment Plan
Keep in mind you must file your tax return before applying for a payment agreement, so get cracking if you think you’ll need one.
18. The Chances of an Audit Are Low
Of all the individual income tax returns filed in 2014, the IRS audited 0.8% and 1.3% of corporate returns. (You can read more about how to avoid an audit here.)
19. But You Still Need to Be Careful
Just because it’s unlikely you’ll get audited doesn’t mean you shouldn’t prepare your taxes as if you will. Not only could you get in trouble for a sloppy return, you could miss out on savings through deductions or credits you didn’t look into.
20. Watch Out for Scammers
Whenever people need help, there are other people out there waiting to take advantage of them. If you’re asking someone to prepare your taxes, make sure they’re qualified to do the job and that they have a good reputation. This guide can help you determine whether or not you need a pro to do your taxes.
21. Ask for Help
If you can’t afford or don’t want to pay for a professional, that doesn’t mean you’re totally on your own. “Go to trusted friends or family with last-minute questions on anything that might be confusing. With a little elbow grease, technology and friendly advice, you can get your maximum refund back — painlessly,” said Micah Charyn, a financial adviser with FTB Advisors in Nashville, Tennessee.
22. You’re Responsible for What You File
Keep in mind that, ultimately, you’re responsible for what’s in your tax return, even if you used software or an accountant to help you. Don’t zone out just because someone else is doing the heavy lifting.
23. ‘Do You Spell That With a C or a K?’
Of course, you know how to spell your name, but don’t leave anything to chance. This is especially important if you changed your name recently. Your tax return must have your legal name on it.
24. While You’re At it, Double-Check Your Address
This is an easy one to mess up if you’ve moved. “Your state may ask you where you lived by the close of the tax year you are filing, but you must file with your current address,” Eisenkraft said.
25. Your Social Security Number
“When you are tired or distracted, it’s so easy to transpose numbers,” Eisenkraft said. “And with so many numbers jumping out at you on the tax return, it’s easy to miss. The IRS will reject your tax return if the Social Security number is incorrect.”
26. Your Dependents’ Social Security Numbers
You must have the right Social Security numbers to get associated credits.
27. & Your Bank Account Info
You want that refund ASAP, right? “One mistake that we’ve seen before is listing the wrong bank details on your taxes,” said Jayson Mullin, the owner and founder of Top Tax Defenders, a tax resolution company in Houston. “This means your return won’t end up in your account. If you notice you’ve made this mistake, you’ll have to notify the IRS and wait an additional six weeks for a check to arrive in the mail.” The same goes for making a payment: You want that go to through.
28. Make Sure You Can Legally Claim Dependents
“There are relationship tests, gross income tests, residency tests, etc. Make sure the person you are trying to claim as your dependent passes all of the IRS tests,” Eisenkraft said. “And if your child is in school and working, remind him or her NOT to claim his own exemption.”
29. There Are Lots of Deductions You Could Potentially Take …
“I call this ‘looking for change in the sofa cushions,’” said Dominique Molina, a CPA in San Diego. “Go back through your bank and credit card statements and scan through, looking for expenses you haven’t been reimbursed for. These can be deducted on Schedule A under Unreimbursed Employee Expenses.”
31. Student Loan Interest
You can get the forms you need from your student loan servicer. They’re usually right there in your online account.
32. Medical Expenses
“You can deduct out-of-pocket medical expenses if you itemize (file Schedule A),” Eisenkraft said. “You cannot deduct any expenses that are reimbursed by insurance. If your medical premiums are deducted pre-tax at work, you cannot deduct them on your tax return. No double-dipping! Be sure to keep all of your receipts.”
33. & Job Search Expenses
You can deduct expenses associated with your job hunt, provided you’re looking for a new job in your current field.
So many people forget to do this, but it’s important. You can count charitable gifts made until April 18 of this year.
36. Or Do a Last-Minute Spring Cleaning
Say you didn’t get around to much charitable giving last year or you didn’t keep records — you could always procrastinate a little more by cleaning the house and donating things you don’t need. Don’t forget a receipt. (But then you really need to get on that tax thing.)
37. Don’t Skip the City Tax
Local and other state taxes, which you can check for at the bottom of W-2 forms, refer to a wage or income tax and may not be automatically deducted from your paycheck if you’re self employed. If you haven’t paid them, be prepared to cut a check. Here’s a handy guide to understanding your paycheck.
38. Contribute to Your IRA
Want a last-minute way to reduce your tax bill? Unlike most other tax-saving strategies, which have to be in place by Dec. 31, you can contribute to your IRA up until tax filing day if you haven’t already contributed your maximum for 2016. As TurboTax notes, for example, you can contribute $5,500, the maximum amount for 2016, and save as much as $1,925 in taxes if you’re in the 35% tax bracket.
39. Don’t Overlook Credits, Either
The IRS estimates that four out of five taxpayers are eligible for the earned income tax credit but don’t take it. A tax pro or software can help you determine if you qualify.
40. Keep In Mind Things Change From Year to Year
Just because you got deductions last year or didn’t qualify for credits last year doesn’t mean the same is true for this tax year. Take time to think about what changed.
Even if you made less than the income threshold that applies to you, don’t ignore tax season completely. “If they had federal taxes taken out of their paycheck or qualify for the earned income tax credit, they may have a refund coming,” Greene-Lewis said of taxpayers.
43. Get a Past Year’s Refund You Forgot to Claim
You have three years to claim a refund.
44. Think About the Best Way to Use Your Refund
Need some motivation to get your taxes done? The average tax refund for tax year 2015 was $3,120. You can finally buy that thing you’ve wanted to splurge on, pay down debt, or even use the cash influx to help yourself build credit.
IRS audits generally go back three years but can potentially reach back six. Keep a copy of your return in a safe place. You may also want to hold onto W-2s if you’re planning on applying for a mortgage any time soon.
47. You Can Make Amends
If you made a mistake in your rush to file, you can amend your tax return. You won’t need to do this for math errors (the IRS can fix those), but you’ll have to file a Form 1040X if your filing status, number of dependents or total income is wrong or if you forgot to claim a certain exemption or deduction.
48. Make a To-Do List
Write down everything that gave you trouble this year or deductions you weren’t sure you could get because you didn’t document them. Maybe you won’t make the same mistake next year.
49. Get a File Folder
For storing all those receipts and documents you forgot to organize this time around.
50. & Set a Calendar Reminder
So you don’t end up in this situation again next year.
Q. I’m thinking of taking a new job and I would have to wear suits every day. I own one suit. Can I deduct the costs as necessary and unreimbursed? — Working Joe
A. Congratulations on the job.
Your question is a good one, but it’s not as simple as you’re hoping.
The IRS under certain circumstances allows employees to deduct unreimbursed business expenses, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
“These expenses are subject to a 2% limitation,” Kiely said. “This means if your unreimbursed employee business expenses are greater than 2% of your adjusted gross income, you can deduct the amount that exceeds 2%.”
According to IRS Publication 529, “Miscellaneous Deductions,” you might be able to deduct the following expenses:
1. Business bad debt of an employee.
2. Business liability insurance premiums.
3. Damages paid to a former employer for breach of an employment contract.
4. Depreciation on a computer your employer requires you to use in your work.
5. Dues to a chamber of commerce if membership helps you do your job.
6. Dues to professional societies.
7. Educator expenses.
8. Home office or part of your home used regularly and exclusively in your work.
9. Job search expenses in your present occupation.
10. Laboratory breakage fees.
11. Legal fees related to your job.
12. Licenses and regulatory fees.
13. Malpractice insurance premiums.
14. Medical examinations required by an employer.
15. Occupational taxes.
16. Passport for a business trip.
17. Repayment of an income aid payment received under an employer’s plan.
18. Research expenses of a college professor.
19. Rural mail carriers’ vehicle expenses.
20. Subscriptions to professional journals and trade magazines related to your work.
21. Tools and supplies used in your work.
22. Travel, transportation, meals, entertainment, gifts and local lodging related to your work.
23. Union dues and expenses.
24. Work clothes and uniforms if required and not suitable for everyday use.
25. Work-related education.
No. 24 on the list is the one we’re talking about.
You can deduct the cost and upkeep of work clothes if you must wear them as a condition of your employment and if the clothes aren’t suitable for everyday wear.
“The second requirement is the stickler of why most workers can’t deduct their work clothes,” Kiely said.
Workers who may be able to deduct the cost and upkeep of work clothes include delivery workers, firefighters, health care workers, law enforcement officers, letter carriers, professional athletes and transportation workers.
Musicians and entertainers can deduct the cost of theatrical clothing and accessories that aren’t suitable for everyday wear, Kiely said.
Interestingly, he said, work clothing consisting of white cap, white shirt or white jacket, white bib overalls and standard work shoes, which a painter is required by his union to wear on the job, isn’t distinctive in character or in the nature of a uniform. Similarly, the costs of buying and maintaining blue work clothes worn by a welder at the request of a foreman aren’t deductible.
Kiely said you can deduct the cost of protective clothing required in your work, such as safety shoes or boots, safety glasses, hard hats, and work gloves. Examples of workers who may be required to wear safety items include carpenters, cement workers, chemical workers, electricians, fishing boat crew members, machinists, oil field workers, pipe fitters, steamfitters and truck drivers.
“Unfortunately for you, suits, white shirts and ties are for many ordinary street clothes and are suitable for everyday care,” Kiely said. “You can wear business attire to weddings, funerals or church on Sundays.”
In the early 60s, Roger Maris and Mickey Mantle hit a remarkable number of home runs including a famous back-to-back four-bagger, which according to Yogi Berra was the reason he famously quipped, “It’s déjà vu all over again.” While spring training is still a few weeks away, we’re in the thick of a tax season, where legions of scammers are swinging for the back wall.
According to the IRS, there was a 400% increase in phishing and malware incidents during the 2016 tax season. With the April 15 filing deadline still feeling as far away as the Green Monster from home plate in Fenway Park, Yogi Berra’s other dictum — it ain’t over till it’s over — was never more true.
My book “Swiped: How to Protect Yourself in a World Full of Phishers, Scammers and Identity Thieves” goes into great detail about the various tactics cyber criminals use to lure you, but the most important thing you can do to keep yourself scam-free this tax season is educate yourself on the most prevalent risks out there.
As ever the best (yet pretty boring) advice is to file your taxes as early as possible. Tax-related identity theft is primarily aimed at grabbing your tax refund, and scammers are creative, sophisticated, persistent, and move very quickly once your information is in hand. Armed with your Social Security number, date of birth and a few other pieces of your personally identifiable information, which if you have been involved in a data breach (you can check here to see warning signs and view two of your credit scores for free on Credit.com) is likely available on the dark web, they are off to log on to motels’ Wi-Fi networks, bunny-slippered feet resting comfortably on coffee tables, furiously filing fraudulent tax returns online.
Here are some other things to bear in mind as the tax season is upon us:
There is no bigger threat. Phishing was recognized as a word by the Oxford English Dictionary more than 10 years ago, which is the main reason I thought of Yogi Berra’s déjà vu quip. By now it is a home truth that there are phishers out there. Catfishing is a regular part of the popular imagination, and phishing emails hit our inboxes with the same regularity as the various promotional emails we get from retailers and media outlets.
Phishing emails take many forms, but they are most commonly pointed at getting enough of your personally identifiable information to commit fraud in your name (identity theft). They also commonly contain a link that places malware on your computer. These programs can do a variety of things (none of them good), ranging from recruiting your machine into a botnet distributed denial of service attack to placing a keystroke recorder on your computer to access bank, credit union, credit card and brokerage accounts to gathering all the personally identifiable information on your hard drive.
Here’s what you need to know: The IRS will never send you an email to initiate any business with you. Did you hear that? NEVER. If you receive an email from the IRS, delete it. End of story. Oh, and they will never initiate contact by way of phone call either.
That said, there are other sources of email that may have the look and feel of a legitimate communication that are tied to other kinds of tax scams.
2. The Criminal Tax Preparation Scams
You learned how to do homework in school for this reason: Not all tax preparers are the same and you must vet anyone you’re thinking about using well before handing over a shred of your personally identifying information. Get at least three references, check online if there are any reviews and call them.
Here’s why: At this time of the year, tax prep offices that are actually fronts for criminal identity theft tend to pop up around the country in strip malls and other properties and then promptly disappear a few days later. Make sure the one you choose is legit!
3. Shady Tax Preparation
Phishing emails may not be aimed at stealing your personally identifiable information or planting malware on your computer. They may be simply aimed at getting your attention and business through enticing (and fraudulent) offers of a really big tax refund. While these preparers may get you a big refund, it could well be based on false information.
Be on the lookout for questions about business expenses that you did not accrue, especially watching out for signals from your preparer that you are giving him or her a figure that is “too low.”
Other soft-cons of shady tax preparation include inflated deductions, claiming tax credits to which you are not entitled and declaring charitable donations you did not make. Bottom line here: We’re all connected these days, and chances are you will get caught, so just make sure you are working with someone who follows the instructions (yes, they’re complicated, and that’s why it’s not a bad idea to get help).
As Yogi Berra said, “You can observe a lot by watching.” Tax season is stressful without the threat of tax-related identity theft and other scams. It’s important to be vigilant, because, to quote Yogi all over again, “If the world were perfect, it wouldn’t be.”
As a millennial, you might have a surprisingly complex tax situation. Owing student loans, working multiple side hustles, and investing at a young age are all complicated scenarios come tax season.
Because of this, filing your own taxes often comes with added stress and unknowns. To help streamline this chore, here are eight tax tips for filing taxes when you have multiple streams of income and various financial responsibilities.
1. Don’t Miss the Tax Deadline
The most important part of filing your taxes is doing it by the deadline. The IRS doesn’t mind if you need more time or you don’t have the funds to pay the entire tax bill right now, but you must take the proper steps to alert them.
Decide which route to take: Either file your taxes completely, request an extension, or apply for a payment plan. Whatever you do, don’t ignore the situation and hope it will just go away.
If you miss the tax deadline without requesting an extension, you could be subject to penalties, interest, and late fees.
2. Choose the Right Tax Software
If your tax situation is fairly simple, you may feel comfortable filing your own taxes using a DIY tax software program. There are many reputable programs available, so shop around to find a good deal.
You may even qualify for free filing services. If you earn less than $64,000 a year, the IRS offers free software to help you file your taxes at no charge.
3. Write Off Side Hustle Expenses
Sure, you know how to file taxes for the income from your day job. But if you also earn money through a side hustle, you may have extra considerations.
For example, you may be able to write off certain expenses you incurred through your side hustle. If you purchased equipment or office supplies, these costs can be deducted on your tax return. Doing so reduces your taxable income, meaning you would owe less to the government.
4. Maximize Education Tax Savings
If you have student loans, you could save money come tax time. Nearly all education costs, whether it’s interest paid on your student loans or additional classes you’ve taken for continuing education requirements, are tax deductible. See a full list of education credits and deductions here.
List out all of your higher education expenses to see which ones you qualify for. If you’re unsure, speak to a tax professional who can offer additional tax tips, or follow the prompts in your tax software.
5. Inquire About the Saver’s Credit
The longer you wait to start saving for retirement, the less time compound interest will have to work on your behalf. To encourage people to stash away money in a retirement account, the IRS offers a tax credit called the Saver’s Credit.
The Saver’s Credit is often overlooked, even by tax professionals, but it can greatly reduce your tax bill at the end of the year.
The amount of the credit is 50%, 20%, or 10% of your retirement contributions up to $2,000 (or $4,000 if married filing jointly). The amount you qualify for depends on your adjusted gross income.
6. Deduct Job-Hunting Costs
Did you know that you can deduct any costs related to hunting for a new job? It’s true. If the new job is in your current career field, you can claim this tax deduction. Job search costs that you may be able to claim on your taxes include:
Employment agency fees
Certifications or classes
Business travel expenses
7. Block Off Time to File
Scheduling time to actually file your taxes is one of the most important tax tips. Block out time in your calendar to work on your taxes so you don’t have to rush through the process. Pretend it’s a regular appointment, and vow to keep it no matter what else comes up.
The tax filing process may take a few hours, so it’s not something you want to save until the last minute. Schedule time in your calendar sooner rather than later so you don’t feel as stressed.
8. Double Check Your Calculations
Even the smallest calculation errors can prove to be big mistakes when it comes to your taxes. Take time to double check your work: Have you listed all the deductions and credits you qualify for? Did you include all your income sources from various jobs? What about your higher education expenses and retirement contributions?
Nearly all DIY tax programs come with built-in features to ensure that your tax information is correct. The tax software will make sure your math is correct, but nothing is better than your own two eyes — especially when inputting your Social Security number, address, income figures, and expense costs.
Doing your taxes is never a fun task, but taking the time to do them correctly can save you big bucks. Educate yourself on the deductions and credits you may be eligible for and lean on free resources to help you file.
Many of us use credit cards every day. We earn rewards points and make shopping and paying for goods easier through the convenience of not having to carry around cash.
Those same perks hold true for business cards as well. But if your business credit card has expenses and fees attached to it, do you know which of those are tax deductible? If you don’t, you’ll be happy to learn that it’s actually quite a few. It turns out that some of the best business credit cards are a lot better at helping you get a break on your taxes than personal cards. In fact, nearly every fee that you incur on your business card can be written off.
Annual fees on a business card are tax deductible. This may be a great way to justify getting that card with the steep annual fee that also has amazing rewards. Yes, you can write it off, but keep in mind that the primary use of the card needs to be for business purposes and not for personal use.
Hopefully you’re not incurring late fees on your credit cards, but mistakes happen and you sometimes forget to make a payment. Those fees can be written off for your business taxes. Of course, it’s always best to call the company and explain you simply forgot and ask if they can waive the fee this time; saving $35 is almost always going to be better than claiming a $35 tax deduction.
Again, in an ideal world you won’t be paying interest on any of your purchases. But there are times when you need equipment, and there just isn’t enough cash in the bank to pay for it right away. Those interest charges are all tax deductible.
As a business owner, you pay the credit card company every time someone uses their card to pay you. These are always business-related expenses and fully tax deductible.
There are sometimes other fees associated with using a credit card. For instance, do you need cash? Your cash advance fees are deductible (although most financial professionals still don’t recommend this expensive way of accessing cash).
Maximizing your Tax Deductions as a Business Owner
The best part about deducting credit card fees as a business owner is there is really no stipulation on how big your business has to be. In fact, if you use a personal credit card and incur expenses, you can deduct them (as long as they are business related). That’s great news for even those who have a side business.
If you think you’ve been leaving credit card-related tax deductions on the table, it’s a good idea to go through your card statements before filing your taxes and add up all the fees. You could reduce your tax liability considerably if you’re using your credit card, whether business or personal, for business use.