Tax Mistakes You May Still Make in Your Thirties

Did you guys file your taxes already? If you haven’t yet, there’s still time to comb your return for some of the most common tax mistakes. Even though we’re in our thirties, taxes haven’t gotten any more fun. Life’s weird like that sometimes.

Well, I guess we could make our own fun – let’s catch some silly little tax errors on all our returns. Good times.

So in the name of fun and happy times, here are some of the top tax mistakes you won’t make because you read OMGImThirty:

1. All names and numbers (such as your Social Security number) need to be absolutely correct. Make sure your name matches what’s on your social security card. Otherwise your taxes may get rejected or you may not be able to efile. The tax man doesn’t care that your cute pet name is Lollykins- he won’t appreciate you using it on your taxes.

2. Don’t file using a paper tax form- it’s a lot harder to catch any mathematical errors. Actually, are you really still using a paper form? Stop. Just no.

3. Make sure your filing status is correct. If you’re single you may qualify as Head of Household. Fancy stuff.

4. Make sure your bank account info is correct, especially if you changed banks recently. You want that tax refund to get safely into your hands, right? Yay, safe and sound tax refund- come home to me!

5. When  you efile, you need to sign your tax return with a Pin number. You can easily use the one from last year…unless you forgot what it was…like I did. If that happens, you can simply enter your AGI from last year. Unless you have no idea what that was…like I did. Just don’t lose your pin, ok? You’ll just keep needing it year after year. Just put it in a safe place already, ok? Ok??

6. If you file for an extension, remember that you still have to PAY. You didn’t think you’d get to collect interest on that tax money for months on end, did you? You know there’s no way Uncle Sam would let you do that without penalty, right?

7. Don’t lose your paperwork…receipts can be requested by the IRS for up to 7 years after you’ve filed! If you’re a hoarder anyway, indulge your habit and add all receipts to that random paperwork collection under your bed.

8. Don’t file late unless you get an extension! And make sure to actually file! Did you conveniently forget to file already? You may think you’re soaring under the radar, but the IRS will find you. Yup yup, they will.

9. Account for all income sources. Even if you don’t tell Uncle Sam that you worked part time at the circus, you can safely wager that the circus reported every fire-eating penny you collected.

FireEater2 (1)

 

Happy filing! And let us know if you think of other common errors you’d like to share with others. Thanks for reading!

Credits vs Adjustments vs Deductions, The Most Common Tax Questions in Your Thirties- Part 3

On to the next one! The next tax question pertinent to those of us in our thirties, that is…

Yesterday, I wrote about Standard Deductions vs Itemized Deductions. Today I will attempt to explain Credits vs Adjustments vs Deductions in the simplest way possible.

It took me forever to understand the difference in these terms (they’re slippery). If you can grasp them, you’re miles ahead of the tax curve..so let’s start 🙂

TOTAL INCOME: So let’s say you’re single and you make $60,000 total this year in income, including every penny that goes in your pocket. That’s your total income. 

ADJUSTMENT (also known as ABOVE THE LINE deductions): Now, let’s say you paid $1,500 in student loan interest this year and contributed $3000 to a traditional IRA (retirement account). No matter whether you decide to take the standard deduction or itemize your deductions (both standard deductions and itemized deductions are known as Below the Line Deductions), you can subtract your student loan interest of $1500 and the traditional IRA contributions of $3000 from your total incomeThis is because they are adjustments. And adjustments are great! So your Adjusted Gross Income would be $55,500. ($60,000 – $1,500 – $3000 = $55,500). 

To clarify more regarding adjustments, let’s say you still made $60,000 in total income, and you still paid $1,500 in student loan interest this year and contributed $3000 to a traditional IRA. But you also gave $500 to charity and paid $1000 in medical expenses. If you took the standard deduction on your taxes ($6,300 this year for single filers), you would still able to subtract the adjustments (student loan interest and health insurance contributions) from your total income but couldn’t subtract the $500 given to charity and the $1000 in medical expenses because they count as itemized deductions. If you itemized your deductions, you could subtract the student loan interest, retirement account money paid, AND charity donations AND medical expenses. This doesn’t mean that you should itemize though- only itemize if your itemized deductions exceed $6,300 (the standard deduction) this year!

CREDIT: So far, we’ve only talked about subtracting from your total income. How about subtracting from your tax bill? Sound good?

So lets say you have to pay $6000 in taxes. If you have a credit, it will reduce that bill dollar for dollar. So if you have a $2,000 credit, your tax bill will be $4,000 (6,000-2000). Credits are the best to have but also the hardest to come by. Credits you could possibly take include the Credit for Child and Dependent Care expenses, the Child Credit, and education credits (like the Lifetime Learning Credit and the Hope Credit).

Let’s illustrate all of this below:

Total income (sum of all your income)
— Above the line deductions
=  Adjusted gross income ← “The Line”
— Standard deduction or itemized deductions
— Exemptions (you can always take an exemption for yourself, and then more for your dependents. Right now the exemption per person is $3,950.)
=  Taxable income

Here’s our example plugged in:

$60,000 Total Income
— $4,500 Above the line deductions (adjustments)
= $54,500 Adjusted Gross Income ← “the line”
— $3,950 Exemption
— $6,200 Standard deduction
= $44,350 Taxable Income

Hope this helps! Let me know if you have any questions or comments! 🙂

Standard Deduction vs Itemized Deductions, The Most Common Tax Questions in Your Thirties- Part 2

It’s still tax time! If you finished your taxes already, kudos to you!

For everyone else, lets get some more questions answered..(and for the record, I haven’t finished mine either, so don’t worry).  🙂

Also, if you didn’t get to read Part 1 of Tax Questions Answered, click here.

I do my parents’ taxes every year and just finished their 2014 filing this weekend. However, I recently realized that even though they always take the standard deduction, I still spend time calculating their itemized charitable contributions- even though that particular type of contribution (charitable) doesn’t factor in on your taxes if you take the standard deduction.

If the paragraph above made no sense to you, let me clarify below. We’ll start with some terminology I feel like I should know all of this now that I’m thirty, but some of it I actually had to dig into a bit, so I’ll explain it pretty piecemeal here:

Gross Income= What you make in a year, including EVERYTHING, from Jan 1 to Dec 31 (you, of course, probably already know this one).

Adjusted Gross Income= Your taxable income after you subtract certain ADJUSTMENTS but before you subtract either the Standard Deduction or your Itemized Deductions (you can only subtract one or the other of those two types of deductions)).

Standard Deduction= An amount you can always subtract from the gross income you’ll be taxed on, as long as you don’t subtract your itemized deductions instead. The standard deduction for the 2014 tax year is:

  • Single or married filing separately: $6,300
  • Married filing jointly: $12,600
  • Head of household: $9,250

Itemized Deduction (not the standard deduction kind)= These are deductions you can take if you decide NOT to take the standard deduction. These include but aren’t limited to: medical and dental expenses that exceed 7.5% of your AGI (Adjusted Gross Income), property taxes, your state and local income or sales taxes, charitable donations you make, work related travel, union dues. 

So if you’re trying to decide whether to take the standard deduction or itemize your deductions, you want to basically choose whichever one is larger.

Here’s an example: Let’s say you’re unmarried with no children and make $50,000…And you can itemize these deductions:

  1. $1000 in work related unreimbursed travel
  2. $500 in medical expenses
  3. $400 in state and local taxes
  4. $100 in clothes donated to goodwill

This equals $2000 in Itemized donations. If you chose to itemize deductions, you’ll be taxed on $48,000 (50,000-$2000). If you took the standard deduction, you’ll be taxed on $43,700 ($50,000-$6,300). So you’d want to take the standard deduction for sure, because you want to be taxed on less income and pay less money 🙂

I’ll stop here for now, but hope this was somewhat helpful! Next time, I’ll talk about Adjustments and Credits, and how they can reduce your tax bill even further!

As always, please let me know if you have any questions or anything to add. Thanks!

Tax-Deductions1

The Most Common Tax Questions in Your Thirties- Part 1

Oh man, it’s getting to be tax time soon. Has anyone already filed their taxes? If so, good for you! Kudos!

caution-taxes-tax-370x229

 

I’m still working in Chicago right now and won’t be able to get all my 1099s together and ready for filing until I get back to New York. I have things moderately organized, and I even have an accountant, but my tax preparation still requires quite a bit of effort- especially since I sometimes end up with over a dozen 1099s per year (!)

In honor of the advent of tax season, and taxes starting to be on the forefront of everyone’s mind, I’ve compiled a list of common tax questions that are relevant to those of us in our thirties. The first few are pretty basic ones which you may have already figured out, and then they get slightly more detailed. Of course, tax answers are rarely simple, so you should make sure to triple check everything for your own personal situation. And I’m splitting this into sections, so you’ll get more tax question and tip articles as April 15th approaches.

1. Should I use tax software this year? Which program?

I used to use H&R Block’s tax software, which I think is pretty good. It’s about $20 for a basic program, and $65 for self-employed software.Turbotax is also quite popular- and it’s base cost is free. Once my self-employment taxes started to get really complex, I hired an accountant.

2. Should I get an accountant?

Only you know whether you need an accountant based on your personal situation. However, I think you can almost definitely make do with simple tax software if you are an employee with only one job and all you need to file is your w2. If you have side income from anything (rental income, side jobs, etc), you may want to consider an accountant- however, I think you still may be able to use tax software successfully. If you’re self-employed, I recommend considering an accountant, if only to protect yourself from accidental audit triggers. You can even find accountants on Yelp now. My goodness, I love Yelp.

3. How much do accountants cost?

CPA’s (Certified Public Accounts) charge anywhere from $150-$400 or more. But you can definitely get a great accountant for less than $400…read those Yelp reviews. A funny bonus of having an accountant is that your tax prep fee is actually tax deductible!

4. Does last year’s tax refund count as income this year?

The answer to this is almost always no if you took the standard deduction. If you itemized your deductions, it may count as income- look into it.

5. What documents do I need to do my taxes?

You need all your w2s (if you work only one job, you’ll have only one w2).

You’ll need all your 1099s if you’re self-employed or have side income.

Also, it’s important to have documentation of any interest you made on any of your savings or investments (you get taxed on this).

Additionally, you’ll need documentation of any interest you paid so you can deduct that from your taxable income (the interest paid on student loans, etc, is tax deductible). Also, if you’re itemizing deductions, you’ll need your receipts, or a spreadsheet of your receipts if you made one. (You won’t actually need to show anyone the actual receipts (except your accountant) unless you’re audited.)

6. If I made very little money this year, do I still have to file taxes?

Officially, for 2014, if you’re under 65 and filing as single and independent, you don’t actually have to file your taxes if you made under $10,500. If you’re married and filing jointly and under 65, the number is $20,300. Here’s a chart with more details. However, you may still want to file taxes for several reasons- one of which is that if you had taxes withheld, you can’t get your tax refund without filing. Here are a few other reasons.

7. What are some deductions I can take to help reduce what I’m paying on my taxes?

Have you deducted the interest you’re paying on your mortgage or student loan debt? Have you deducted your health care costs? Did you spend lots money to move for your job? There are some great deductions you may not be using to your advantage. Mashable goes into fantastic detail on this here.

Hope this has helped you with some of your questions- feel free to comment below with additional ones- I’d love to hear from you! Look out for more tax info here soon, and good luck filing!

%d bloggers like this: