3 Ways to Get Socially Distanced Tax Prep This Year

Before COVID-19, doing your taxes often meant carrying a box of paperwork to someone’s office for a long, in-person visit. For many people, that’s no longer a viable option in this era of social distancing. But there are still ways to get your taxes done safely — if you know what to look for.

1. Ask if the preparer has a secure portal

A secure portal is a dedicated channel through which you and your tax preparer can upload PDFs or pictures of receipts, W-2s and other tax documents, or even review and sign your completed tax return. “People can review the work that we’ve done and then sign their tax return … they never have to step foot into the office,” says Stephanie Gandsey, marketing director at DHJJ Financial Advisors in Naperville, Illinois. TurboTax and H&R Block offer similar options.

Ask about the type of portal your tax preparer is using. Google Drive and Dropbox are not secure options for sending documents that contain your Social Security number and other personal information, Gandsey says.

Know how long your information stays in the portal, too. Michael Cody, a certified public accountant at Lieb, Cody & Co. in Torrance, California, says he usually has only seven days to download documents that clients send through his company’s portal — after that, the link disappears. Clients have around 30 days to download documents he sends to them, and the portal tracks activity. “Anytime someone downloads that document I sent them, I get an email back to me saying so-and-so downloaded it,” he says.

2. Look for drop-off services

If you don’t want to deal with digitizing documents, many tax preparers provide drop-off locations. Cody’s firm, for example, has a secured lobby with a mail slot into which clients can put documents. “They just come in, we point them to the box, and they throw [them] right in,” he says.

Some Volunteer Income Tax Assistance, or VITA, and Tax Counseling for the Elderly, or TCE, clinics also provide drop-off services. These clinics offer free tax preparation for people with low incomes, disabilities, language barriers or who are 60 or older. You might find one in your area at irs.treasury.gov/freetaxprep/ or by searching online for “VITA drop off” plus your city.

3. Schedule a virtual visit

Many tax preparers are holding face-to-face meetings with clients on video-conference platforms to go over tax returns, answer questions and address issues and opportunities. TurboTax, H&R Block and TaxAct also offer packages and upgrades that provide virtual meetings with tax pros if you’re using software to do your own taxes.

“We used to say face time,” Gandsey says. “Everyone wants to get in front, sit right across the desk. And what we’ve really switched to now is attention — giving the client attention. And attention doesn’t have to be in person.”

In some ways, virtual meetings can be a better experience, she adds. Tax preparers can show clients exactly what documents they’re looking at on the screen and even highlight portions to look at. “I think it’s actually made it easier for a lot of people,” she says.

Scheduling is often more flexible, with less wait time before meetings, Cody says. “I can actually get in front of clients quicker now. I want to know what keeps you up at night. Maybe I can help you out. The sooner I can put that to bed, the better.”


Tina Orem writes for NerdWallet. Email: torem@nerdwallet.com.

The article 3 Ways to Get Socially Distanced Tax Prep This Year originally appeared on NerdWallet.

Image provided by 123rf.com

Image ID: 53076723

4 Signs You’re About to Get a Tax Surprise

At tax time, it’s often hard to predict how much you’ll owe or receive in a tax refund without actually doing your taxes. But there are some telltale red flags that can mean an unwelcome tax surprise is headed your way, tax pros say. Here’s how to spot the signs — and how to keep them from financially derailing you.

1. A 1099-NEC lands in your mailbox

1099-NEC reports income earned from freelancing, from a side gig or as an independent contractor. Money your clients paid you is on that form if it was at least $600 — and there was likely no tax withheld. The IRS and maybe even your state will probably be looking for that tax money from you by the April 15 tax-filing deadline.

“More people are working side jobs or driving Uber or delivering for DoorDash,” says Eric Fletcher, a certified public accountant at Thompson Greenspon in Fairfax, Virginia. “And that income is going to come to them reported as a 1099.”

How to cope: You’re generally not taxed on the gross income for this type of work, you’re taxed on the net income or profit, Fletcher says. Gathering your receipts and other information about your business expenses can reduce that net income and thus cut your tax bill. Contributing to an IRA could also reduce your taxable income for 2020 if you do it by the April 15 tax-filing deadline, he says.

2. You filled out a new W-4 last year to reduce paycheck withholdings

A W-4 is the form you use to tell your employer how much tax to withhold from your paycheck. Many people may have filled out a new W-4 in 2020 to reduce those withholdings and get more take-home pay in order to make ends meet. But that could mean a nasty surprise at tax time for a lot of filers, says Abby Donnellan, a CPA at Anders CPAs and Advisors in St. Louis.

“Their withholding has been adjusted, and they didn’t really realize that until the end of the year, when they’re used to a couple-thousand-dollar refund and now they’re having to pay a couple thousand dollars,” she says.

How to cope: Check with a tax pro or use a tax calculator now so that you have more time to plan for any tax-refund shortfalls or unexpected tax bills. If you need to, readjust your W-4 so you don’t encounter the same issue next year.

3. Your investments did well in 2020

If the market lifted your portfolio or you sold some investments last year, your tax situation may not be what you expect, Donnellan warns. “There might be some large capital gains coming,” she says.

How to cope: There may not be a lot you can do to offset those capital gains now, because Dec. 31 has come and gone. But you can make some strategic moves now for a better 2021, including reviewing your situation more frequently. “I would suggest quarterly, at least, looking at your investments to make sure there’s not a bunch of income that you’re not expecting,” Donnellan says.

4. You received unemployment

Unemployment income isn’t tax-free. “It will be subject to income tax, and that also is going to include any additional unemployment compensation that’s provided from the federal government,” Fletcher says. You’ll likely receive a form 1099-G in the mail showing how much you received, and the IRS and your state may want a cut by April 15.

How to cope: If you don’t have the money to pay your tax bill by April 15, know that the IRS offers installment plans that allow you to pay over time. And if you’re receiving unemployment in 2021, you can have 10% withheld for taxes from each disbursement, which could help prevent another tax surprise next year.


Tina Orem writes for NerdWallet. Email: torem@nerdwallet.com.

The article 4 Signs You’re About to Get a Tax Surprise originally appeared on NerdWallet.

Image provided b 123rf.com

Image ID: 44590173

3 Signs That Itemizing Your Taxes May Be Worth the Headache

For many people, one of tax season’s trickiest decisions is whether to take the standard deduction or itemize. Taking the standard deduction may be faster and simpler, but itemizing could save more money if you have the time and energy to fill out extra forms and dig up receipts.

Fortunately, two tax pros say it’s often easy to tell ahead of time whether itemizing could be worth the effort — if you know some of the signs.

Sign 1: You owned a home

Mortgage interest, mortgage insurance premiums and property taxes are typically deductible if you itemize, and they can easily exceed the standard deduction for many taxpayers. There’s a $10,000 limit on the amount of state and local taxes, including property taxes, you can deduct but that’s not necessarily a deal-breaker, says Matt Keefer, a certified public accountant and director of tax services at Gorfine Schiller Gardyn in Owings Mills, Maryland.

“If I know a [single] taxpayer is guaranteed to have at least $10,000 [in deductions tied to state and local taxes], then I only need another $2,200 of other types of itemized deductions to get above the standard deduction,” he says. “That’s the typical way that I look at it to see if it’s worth the effort for the clients to track down all the documents or not.”

Sign 2: You had big medical expenses

Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income can be deductible if you itemize. “So if you have $100,000 [of adjusted gross income], the first $7,500 is not deductible, but the excess is,” says Robert Karon, a certified public accountant and managing director at CBIZ MHM in Minneapolis. Eyeglasses, dental bills, doctors’ fees and other costs that insurance didn’t cover could add to the pot.

Sign 3: You donated money or goods to charity

Charitable donations are popular tax deductions, but you can only claim them if you itemize. When added to other itemized deductions, they can tip the scales toward itemizing, Karon notes. “For many people, it’s not a big number, but if it’s two, or three or four or five thousand dollars, it adds up,” he says.

Signs of things to come

The key is to view the signs cumulatively. Karon says he can get a good idea fairly quickly when people own a home and pay state income tax, for example.

“They’re going to have at least $10,000 worth of [state and local] taxes,” he says. “Second thing you look at is their mortgage interest. If they have a $500,000 mortgage at 4%, that’s $20,000 worth of interest. So already, $20,000 and $10,000 is $30,000. That person’s itemizing. And then you’re going to want to inquire about charitable donations if they didn’t list them, or medical expenses if they didn’t list them.”

Renters who didn’t have a ton of unreimbursed medical expenses or charitable deductions, on the other hand, are probably going to take the standard deduction. “You’re going to be able to eyeball that pretty quickly,” Karon adds.

Tax preparers and tax software typically run the numbers both ways to calculate which route will save the most money.

Even if you go with the standard deduction, the IRS may let you subtract a few extra things without having to itemize. A big one is business expenses from a side gig, which may go on Schedule C, Karon says. And there are so-called above-the-line deductions people may be able to take without itemizing, including for things such as certain IRA contributions, student loan interest, teaching expenses or contributions to health savings accounts.

Think about your state income tax return when deciding whether to itemize or take the standard deduction, Keefer notes.

“Here in the state of Maryland, if you take the standard deduction on the federal return, then you have to take the standard deduction on the Maryland return,” he says. “It’s something to look out for.”


Tina Orem is a writer at NerdWallet. Email: torem@nerdwallet.com.

The article 3 Signs That Itemizing Your Taxes May Be Worth the Headache originally appeared on NerdWallet.

Image provided by 123rf.com

Image ID: 32360801

6 Surefire Ways to Delay Your Tax Refund

If you’ve got a tax refund headed your way, you’re probably itching to get your hands on it as soon as possible. But plenty of speed bumps can cause the IRS to pump the brakes on delivering that precious pile of dough. Here are six to keep in mind this filing season.

1. Filing your tax return on paper

The IRS issues most tax refunds within 21 days, but that wait could drag on for a month or more if you don’t file electronically. There are two big reasons: First, the mail takes more time. Second, those paper documents take longer for the IRS to process. The IRS recommends not even bothering to check the status of your tax refund until four weeks after you mail a paper return, and IRS representatives can’t research the status of your refund until six weeks after you put it in the mailbox.

2. Asking for a paper check instead of direct deposit

Telling the IRS you want a paper check can slow down your tax refund because you’ll have to wait for the mail to show up. Get your money faster by having the IRS deposit your tax refund directly into your bank account instead. Just provide your account number and routing number on your Form 1040. You can also split your refund among up to three different accounts, such as investment accounts, IRAs, health savings accounts, regular checking or savings accounts. When you file your tax return, just add Form 8888 to tell the IRS how to divvy things up.

3. Reporting wages that don’t match what’s on your W-2

Your W-2 shows how much your employer paid you and how much tax you’ve already paid on those earnings. You’ll need to enter the information from your W-2 onto your tax return, but there’s a catch: When your employer provides your W-2, it also sends a copy to the IRS. So if the IRS notices that what you entered on your tax return doesn’t match its copy of your W-2, your refund could come to a screeching halt while the IRS waits for an explanation, according to Marc Schnoll, a certified public accountant at Sexton & Schnoll in Gainesville, Florida. “That’s typically a data entry error,” he notes.

4. Claiming the Earned Income Tax Credit or the Additional Child Tax Credit

The Earned Income Tax Credit and the Additional Child Tax Credit can save you thousands of dollars if you qualify — but be prepared to wait longer for your refund. Thanks to people filing fraudulent tax returns claiming the EITC and the ATC, the law requires the IRS to take more time to verify some of the information on tax returns that claim those credits.

5. Not reviewing your teenager’s tax return

If your kid has a job and needs to file a tax return, be sure he or she checks the right boxes. Otherwise, you might lose out on some tax breaks, which could shrink your refund. “If they file before you and inappropriately claim that nobody else can claim them as a dependent, then that’s going to block you from claiming that child,” Schnoll says. “That’s going to be a problem as well.”

6. Incorrectly claiming dependents

If your ex files his or her tax return before you do and claims your child as a dependent, you could be in for a refund delay if you also claim the child as a dependent on your own tax return, Schnoll warns.

“Even if you’re entitled to the deduction or the credits associated with that child, if your ex-spouse claims them first, it’s going to cause a problem,” he says. “Your return will not be accepted by the IRS, and that will of course delay the refund. That happens fairly frequently.”

Your ex may need to amend his or her tax return to remove the child before you can file and get your correct refund, Schnoll says. “It’s a battle that, frankly, the IRS doesn’t want to be in the middle of.”


Photo From: 123rf.com

Photo ID: 68711039

The article 6 Surefire Ways to Delay Your Tax Refund originally appeared on NerdWallet.

Reclaim Tax Breaks You May Have Missed in Recent Years

If doing this year’s taxes made you wish you could go back in time and claim tax breaks you’ve realized you overlooked or forgot on an old tax return, then congratulations, McFly — time travel is possible at the IRS. Here’s how you can rewind the clock on old tax returns and recoup money you may have left behind.

1. Dial it back to 2015

In general, you can go back and change the last three years of your federal tax returns, says Stephen Varner, a senior tax manager at Kruggel Lawton CPAs, which has offices in Indiana, Michigan and Tennessee. That means this year you can backtrack as far as 2015 to claim tax deductions or credits you overlooked. You can also change your filing status (from single to head of household, for example), or switch between itemizing and taking the standard deduction.

2. Get IRS Form 1040X

This is the flux capacitor of the tax world — it’s what makes it possible to change the past. By filling it out, you tell the IRS exactly how you want to change an old tax return. Your tax software may have a module that can help you fill out a 1040X electronically, but the IRS is old-school about filing amended returns and requires people to mail in paper copies rather than submit them online. Also, if you’re claiming overlooked deductions or credits, you’ll still need to be able to prove that you qualified for them that year, Varner says. Be prepared to wait, too. The IRS can take up to 16 weeks to process everything, though you can track the status of an amended return using the Where’s My Amended Return tool on IRS.gov.

3. Catch up

If you didn’t file a tax return in the past three years and now you realize you could’ve gotten a big refund, you probably can still file and get your money, Varner says. However, you’ll have to track down your tax records for that year, such as your W-2, which shows what your employer paid you (among other things), and any 1099s, which are records of your capital gains and other forms of income. Finding old tax information can be tricky, but it’s not impossible. In many cases, the people who originally sent you those forms also probably sent a copy to the IRS, which means you might be able to get your hands on at least some of the information by requesting a free tax transcript from the IRS.

4. Get help

Filing or fixing a tax return for a prior year can get complicated quickly because in general you have to follow the tax rules for that particular tax year, Varner says. Plus, you may need to go back and adjust or file your state tax returns. Tax rules and thresholds change every year, so don’t be afraid to get help from a qualified tax pro, he says. Just be sure that you’ll get back more than you spend to get it. “It wouldn’t make sense to pay 500 bucks for return prep if your refund is only going to be 500 [dollars],” he says.


Photo From: 123rf.com

Photo ID: 36972909

The article Reclaim Tax Breaks You May Have Missed in Recent Years originally appeared on NerdWallet.

Here’s What Homeowners Must Remember at Tax Time This Year

Homeownership traditionally comes with some great tax breaks, but lots of things are different this year due to new tax rules. Here are four things that could put a wrinkle in your tax return this filing season if you’re a homeowner.

1. The mortgage interest deduction is different

Mortgage interest is tax-deductible, but this year the deduction has been adjusted. The deduction is limited to interest on up to $750,000 of debt ($375,000 if you’re married filing separately) instead of $1 million of debt ($500,000 if married filing separately).

The key date here is Dec. 15, 2017. If you took out your mortgage before then, the rule change likely doesn’t affect you, according to Ruthann Woll, a certified public accountant and principal in the tax services group at RKL LLP in Wyomissing, Pennsylvania. There’s an exception for people who were under contract to buy a home before Dec. 15, 2017, as long as they were scheduled to close by Jan. 1, 2018.

Also, the law treats refinanced mortgages as if they originated on the old loan’s date, which means the old limit of $1 million still applies. (If you refinance to borrow more than your current mortgage balance, different rules may apply, though.)

2. The property tax deduction is now capped

Property taxes are generally still tax-deductible, but this year the deduction is subject to a total cap of $10,000, which includes property taxes plus state and local income taxes or sales taxes paid during the year ($5,000 if married filing separately).

“That’s, obviously, huge for everybody, especially wage earners who have high state and local taxes to begin with,” Woll says.

3. The HELOC deduction has new rules

New rules around home equity lines of credit, or HELOCs, can affect whether the interest on those loans is tax-deductible. Now you can deduct HELOC interest only if you used the HELOC money “to buy, build or substantially improve the taxpayer’s home that secures the loan,” according to the IRS. In other words, if you used the money to improve your house, you can probably deduct the interest.

“But if you’re using that line to pay off personal expenses, like credit cards or things like that, then you can’t deduct it,” Woll warns.

4. Moving expenses aren’t deductible for most anymore

Under the old tax rules, you may have been able to deduct the cost of moving. But under the new tax rules, moving-expense deductions are largely limited to military members.

“If you’re on active duty, or if it’s a move pursuant to a military order, change of station, then those deductions are allowed,” Woll reminds homeowners.

A word about itemizing this year

Although many tax deductions associated with homeownership are still around this filing season, you might decide not to take any of them. Woll says financially it may not be worth it.

That’s because something else happened to the tax rules in 2018: The standard deduction increased dramatically to $12,000 for single filers and $24,000 for joint filers. The effect is that a married couple filing jointly would probably need to have more than $24,000 in itemized deductions — those related to owning a home and any others as well — in order to make itemizing the better route financially.  And so, many people might save more money (and time) this year by scrapping the itemized deductions for mortgage interest, property taxes and all the rest and just taking the standard deduction.

People shouldn’t stop keeping track of their deductible expenses, though. For some, itemizing could still be the better route. “They could be leaving money on the table,” Woll says.

The article Here’s What Homeowners Must Remember at Tax Time This Year originally appeared on NerdWallet.

Photo from: 123rf.com

Photo ID: 51012844

5 Tips for Cutting the Cost of Having Your Taxes Done

Many taxpayers stress about the size of their tax bills this time of year, but many more may be stressing about the size of the bill to calculate their tax bills. It now costs $188, on average, to have a tax preparer do a Form 1040, according to the National Society of Accountants. Itemize and add a state return, and the average rises to $294.

For many people, the struggle to find affordable, high-quality tax preparers is real, but experts say five things can help rein in the cost.

1. See if you can get free help

The IRS programs — Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) — provide free tax prep services generally to people who make $54,000 or less, have disabilities, are older than 60 or speak limited English. This can be a huge money-saver if you qualify. To find locations in your area, go to irs.treasury.gov/freetaxprep.

2. Shop around (but thoughtfully)

Comparison shopping for tax preparers can save money, but it can be tricky, too. Not all tax preparers charge by the form — some charge by the hour and some charge per return, says Christine Freeland, president of the National Society of Accountants.

“You’re going to pay also by the level of experience and background that somebody has,” she says.

It’s OK to ask a preparer for an upfront estimate, says Melissa Labant, director of tax policy and advocacy for the American Institute of Certified Public Accountants. “Bring in a copy of your prior year return, and let them know if there were substantial changes in this year versus prior year,” she says.

And if the final bill is significantly higher than what you were quoted, ask why. “It may be that your return was more complicated than they anticipated, but if they don’t have a reason for why your return ended up being twice as much as what they had quoted you, that would be a red flag to me,” she says.

3. Read the contract

“Typically, tax preparers that want a long-term relationship with you will have some type of an engagement letter,” Labant says. That will help you understand how the preparer’s fees work, and it may give you a heads-up on whether there will be charges for things such as extra copies of your return.

Preparers can’t base their fees on a percentage of your tax refund amount, Freeland says, and they can’t charge you a separate fee for having the IRS direct-deposit your refund.

4. Ask for a break if you need it

Negotiating tax-prep fees isn’t very common, but sometimes it’s OK to ask for a discount, Freeland says.

“If you’re having a bad year and you’ve been with somebody for a long time and something’s happened, somebody’s lost a job, you’ve lost a spouse, you’ve had something that’s out of the ordinary, I think there’s nothing wrong with calling your preparer and saying, ‘Look, this is the bind I’m in this year. Is there anything you can do for me?’” she says.

5. Start early, get organized

Tax preparers often charge more as the April filing deadline nears, so the earlier you get your documents to them, the more you could save. Many preparers draw a line in the sand somewhere around the last week of March, Freeland says. After that, fees often start rising.

Furthermore, even though the complexity of the return and the quantity of records heavily influence the cost of human tax preparation, so does your level of organization, Labant says.

“Are they coming to you April 14 with a box of receipts? OK, that person’s not organized. It would be reasonable to expect a preparer to charge them more, as opposed to someone who had all of their forms, they completed the organizer [and] reached out in January,” she says.

The article 5 Tips for Cutting the Cost of Having Your Taxes Done originally appeared on NerdWallet.

Photo from: 123rf.com

Photo ID: 45107458

How to Make the Most of the Child Tax Credit This Year

The wallet-emptying experience of raising kids understandably fuels a lot of interest in the Child Tax Credit, but thanks to some big changes recently, the fascination could reach Tickle Me Elmo-like proportions. Here are a few things tax pros say you should know about this credit and how you can take maximum advantage of it on your tax return.

Double down

One of the most notable changes to the Child Tax Credit in 2018 is that it doubled from $1,000 per kid to $2,000 per kid. Even though the end of the personal exemption in 2018 may eat away at some of those tax savings, many parents will most likely see a benefit, says Chad Harrison, a certified public accountant in Mason City, Iowa.

“If everyone’s income was the same as last year, family size the same as last year, and everything was the same as last year compared to this year, the majority of people will come out ahead,” he says.

There are other factors to think about, adds Michael Ruger, a partner and chief investment officer at Greenbush Financial Group in East Greenbush, New York. For example, the Child Tax Credit is more potent than a tax deduction. That is, it’s a dollar-for-dollar reduction in your tax bill rather than a reduction in your taxable income. Also, federal income tax rates are broadly lower for most people in 2018 compared to 2017, meaning that even if you had more taxable income this year, it will likely be taxed at a lower rate. And the bigger Child Tax Credit could erase a larger chunk of that tax bill.

Stop assuming you don’t qualify

Last year, the Child Tax Credit started phasing out for single filers with modified adjusted gross incomes over $75,000 and for joint filers with MAGIs over $110,000. For 2018, however, the phase-out doesn’t start until single filers hit $200,000 MAGI and joint filers hit $400,000.

That’s a game-changer, according to Harrison.

“It has drastically increased the amount of money a person can make and still qualify for the credit,” he says.

And if the Child Tax Credit reduces your tax bill to zero, the IRS may even send you up to $1,400 of that leftover credit per child, Harrison notes.

Think about who else you support

The Child Tax Credit has a new little brother this year — a credit that can knock $500 off your tax bill for each of your qualifying dependents other than children. Aging parents and adult children might fall into this bucket — if they meet the IRS’ somewhat complicated definition of a dependent, Harrison says.

Relationship, age, residency, special-needs status and filing status are some of the factors the IRS considers, which is why giving a down-and-out friend or relative money to pay the bills doesn’t necessarily make you eligible for this credit, he cautions.

Mind those birthdays

They grow up so fast — and that can raise your tax bill. Among other things, your children still have to be 16 or younger by the end of the calendar year for you to qualify for the Child Tax Credit. That can complicate things if there’s a teenager in the family. Not only is the personal exemption gone; you may only qualify for the $500 Credit for Other Dependents instead of the $2,000 Child Tax Credit, Ruger says.

“That $500 tax credit may not make up for that personal exemption,” he says.

“It’s going to be, in general, tough for taxpayers to know where they land, because so much changed,” he adds. “I think a lot of people are going to be surprised both at the upside and the downside when they get to filing their taxes for 2018.”

—–

This article was written by NerdWallet and was originally published by The Associated Press. 

The article How to Make the Most of the Child Tax Credit This Year originally appeared on NerdWallet.

Photo from gettyimages.com

Image ID : 897803516

5 Pieces of Popular Tax Advice That Are Actually Baloney

The world is full of tax advice this time of year, but not all of it is good. Here are five misguided, worthless or flat-out bad pieces of tax advice that tax pros say they wish never existed.

Bad advice: Get an extension — you’ll have more time to pay your taxes!

Why it’s bad: It’s wrong. Getting an extension gets you more time to file, not more time to pay. “I see that every single year,” says Tyler Gibbons, a CPA and partner at Riser McLaurin & Gibbons in North Charleston, South Carolina. “If an extension meant you didn’t have to pay your taxes until October, the [April 17] tax deadline would mean nothing to anybody. Not a single American would file their taxes in April if that were the case.”

Better advice: If you don’t have enough cash to pay your taxes, hand over what you can by April 17, then get on a payment plan with the IRS. As long as you’re responsive and provide information when requested, the IRS typically doesn’t resort to wage garnishment or other scary stuff, Gibbons says. “They do that when you just ignore them,” he says.

Bad advice: Don’t get an extension — you’ll get audited!

Why it’s bad: It’s bogus. “For some reason, that is just one that comes up all the time,” Gibbons says. The result is that people rush and throw together a tax return in April even if they don’t have everything in order. “They think if they get extended that they’re going to get audited, or it raises their probability of getting audited. And it’s just bad advice,” he says.

Better advice: Get an extension if you need it (but get it by April 17). Better to file later and correctly than to file in a hurry and make mistakes, Gibbons says. You also can get a sense of your situation now by putting your numbers into a tax calculator.

Bad advice: You should buy real estate for the tax breaks

Why it’s bad: Although mortgage interest and property taxes can be deductible, buying real estate has to make sense for other reasons too, says Eric Tyson, co-author of the forthcoming “Selling Your House for Dummies.” If you plan on moving soon or aren’t going to itemize on your tax return, or if houses are overvalued in the area, buying may not be a good idea. “I don’t care if you get the tax break if it’s not a good deal,” Tyson says.

Better advice: Ignore people who make taxes the No. 1 reason to buy real estate. Also, think about your tax-filing habits. You have to itemize to deduct mortgage interest and property taxes; it won’t do you much good if you take the standard deduction, Gibbons says. “Then, owning a home is just owning a home, and you’re not getting the benefit of the quote-unquote ‘tax write-off,’” he says.

Bad advice: Taking the home office deduction will trigger an audit

Why it’s bad: It’s not true. “We hear that every day,” says Jordan Amin, a CPA and partner at EisnerAmper in Iselin, New Jersey. “I don’t believe that the home office deduction gives rise to an audit any more than anything else does.”

Better advice: Take the deduction if you qualify, Amin says. “Even if you were to be audited, if you’re doing everything properly and accurately, then that would be fine. So why would you leave a deduction on the table?” he says.

Bad advice: You don’t have to report money from a side hustle

Why it’s bad: Having a side job or getting paid wages in cash still counts at tax time. “They think that if they’re not getting a form, like a 1099 or a W-2, that they do not have to report income. We hear that all the time,” Gibbons says.

Better advice: Report all of the income you earn — even if you were paid in cash and even if you didn’t get a W-2 or 1099 from the person who paid you. “That mentality of, ‘If I get cash, it’s not taxable’…. It just makes us wonder sometimes,” he says.

The best advice of all

Here it is: Unless they’re qualified tax professionals, your neighbors, in-laws and co-workers probably aren’t the tax gurus they say they are.

“You wouldn’t necessarily take advice, if you had the flu, from the guy at the gym. I’m not sure you should take tax advice from that person either,” Amin says.

“If it sounds like it’s too good to be true, it’s probably something you should look into and get advice from a professional, rather than from the guy on the bus,” he says.


The article 5 Pieces of Popular Tax Advice That Are Actually Baloney originally appeared on NerdWallet.

Image by avemario via 123RF

Copyright: <a href=’https://www.123rf.com/profile_avemario’>avemario / 123RF Stock Photo</a>

Doing Your Own Taxes? Pros Say Avoid These 4 Blunders

It’s easy to make mistakes when you’re trying to do your own tax return, but some mistakes seem to happen way too often. We asked a couple of tax pros about gaffes they see over and over again when people fly solo on tax prep. Here are four big ones they want you to avoid.

1. Using the wrong filing status

There are five primary ways to file: as single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child. You can’t just pick a filing status that sounds good, you can only use one you actually qualify for, says Larisa Cooper, a certified public accountant at GMLCPA in Tucson, Arizona. (Learn more about how to choose the right tax filing status.)

For instance, single women receiving child support often don’t realize they may be able to use the head of household filing status. “They file as single and they lose a lot of money,” says Michele Cagan, a CPA in Baltimore.

People who recently married or divorced also are especially prone to using the wrong filing status, which results in botched returns, overpaid or underpaid taxes, and other headaches, she adds.

“Just because you guys aren’t living in the same house doesn’t mean you’re divorced for tax purposes,” she says. “If your state has legal separation, which not every state does, that counts as divorce for taxes, but otherwise if you’re technically married on December 31, you’re married and you have to file married.”

2. Filing late because you can’t pay

Sometimes people decide to file their tax returns after the April deadline because they can’t afford to pay to the IRS what they owe. That’s a huge mistake, Cagan says. Filing late compounds money problems.

“There are pretty big fines and penalties for not filing on time, especially if you owe,” she warns.

Late-filing penalties typically cost 5% of your unpaid tax for each month your tax return is late. And late-payment penalties run 0.5% of your unpaid tax for each month your tax payment is late. That’s just at the federal level, and it excludes interest. Filing an extension doesn’t get you more time to pay, she says. It’s just an extension of the time to file.

There’s also no reason to procrastinate on preparing your return. “If you file early, you don’t have to pay early. That’s another thing people don’t know,” Cagan says. “You can file early, owe money, and as long as you pay by the deadline, you’re fine.”

3. Claiming the wrong dependents

The rules about who counts as a dependent can be complicated, but one thing is clear: Two people can’t claim the same person as a dependent. Divorced couples mess it up all the time, though, Cagan says. Both parents mistakenly claim the kids as dependents, or neither does.

“People don’t talk to each other, because they’re getting divorced and they don’t want to talk to each other,” she says.

People also repeatedly flub their taxes when their kids leave for college, Cooper adds. “[The parents] just won’t claim them because they think, ‘OK, the child is in college; I can’t claim [him] anymore,’ but that’s not necessarily true. Then the child goes ahead and files their return, claims [him]self, gets a huge refund. Then the parents look at their tax return and they have a huge bill.”

4. Making dangerous assumptions

People often use the same tax software version for far too long, Cagan says. They assume that what worked last year also will work this year. But events such as buying a house, having a baby or getting married can create more-complex tax situations, she says.

“When people have a [life] change and they don’t change their tax software, they’re trapped with whatever functionality it has,” she says. “People use the same things over and over out of habit, and it really limits how well you can do your taxes and how much you can reduce your tax bill.”

Risk-taking behavior is another issue. When Cooper points out a mistake on a tax return, she says she often gets this response: “Well, I’ve done it for years and the IRS hasn’t said anything.”

“Sometimes it takes the IRS many, many years to get caught up,” she warns. “Just because they haven’t said anything, it does not mean that they checked the return and they said that the return was correct.

“Sometimes we have to almost defend ourselves and show them the code, and we send them links on the IRS website. Then they go, ‘Oh, OK, all right. I’m really not supposed to be doing this,’” she says. “It’s a lot of educating.”


The article Doing Your Own Taxes? Pros Say Avoid These 4 Blunders originally appeared on NerdWallet.

Image by Andriy Popov via 123RF

Copyright: <a href=’https://www.123rf.com/profile_andreypopov’>andreypopov / 123RF Stock Photo</a>