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November 2018

The Effects of Divorce on Taxes: What You Need to Know 

Going through a divorce can be a tough, long, and more often than not, complicated process. In the US, more than 40% of marriages end up filing for a divorce at some point. With such a rate, we must wonder what the effects of divorce on taxes really are. Therefore, we’ve come up with this brief summary of several aspects to consider before filing for a divorce.

There are several effects of divorce on taxes that we must be aware of if we are going through the process of ending our marriage. To begin with, we will have to think about the date, as this will impact our filing status. Then, we need to know what filing status we’ll opt for, either as single or head of household. Also, we need to understand the role of alimony, child support, and dependent child credits will play after a divorce.

How Can A Divorce Change Your Taxes?

Whenever we decide to end a marriage, many different aspects of our life change, sometimes drastically. The same happens with our tax situation, and we need to prepare for all the different adjustments we’ll have to face. To begin with, the date on which we decide to complete our marriage won’t really make a difference. This is because the IRS considers you unmarried during the complete year even if your divorce process ended by Dec. 31st. However, you must consider the total income you’ll file during the year of your divorce in order to settle on a completion date beforehand.

Filing Status After A Divorce

One of the most relevant effects of divorce on taxes is that it can change the status we’ll use when filing our income report. As we mentioned before, if our divorce was final by Dec. 31st, the IRS will still consider us unmarried during the entire year. If we haven’t been able to finalize our divorce by the end of the tax year, we can decide to file as married filing jointly or separately. However, once our divorce is final, we must file as either single or head of household. Such status will bring us many benefits, including a higher standard deduction, a lower tax rate, and even eligibility for some other tax credits.

Alimony and Child Support

After our divorce has been processed, we still need to take care of taxes on alimony and child support payments. In the case of alimony, the ex-spouse who pays for it will be able to take a tax deduction for such payments. However, the IRS will only consider alimony payments that we make in cash, and that a divorce agreement requires. On the contrary, child support payments do not qualify for a tax deduction for the person paying it. Also, the recipient of child support payments doesn’t have to pay income taxes on such amounts.

Dependent Child Tax Credit

One of the effects of divorce on taxes that most couples tend to contend about is claiming children as dependents. This is because we are able to qualify for several tax exemptions and benefits when we claim for child dependents. One example is the child tax credit that parents or guardians of dependents can get up to $2000 as a tax credit for every child. In order to be eligible for such credit, the child must be under the age of 17 and lived with you for more than half of the tax year.

Year-End Tax Tips to Save Money This 2018

With the last month of the year about to begin, looking for ways to save on your taxes sounds like a good idea. There are many different ways through which we can make sure we lower our tax return payment for next April. Here we have three amazing year-end tax tips to save money this year that are quite simple and effective.

Whether you decide to make a last-minute donation to your favorite charity or giving a tax-free gift to a family member, these options are really convenient. Besides, you’ll be helping those who need it the most. Also, you will definitely make the month of someone if you decide to go for the tax-free gift. Now, if none of these options work, you might be able to talk to your employer and have them defer your bonuses until January, in case you earned any.

Donate to Charity

One of the most effective and selfless year-end tax tips that will help you save some money is to make a donation to charity. Before making a donation, you must be aware that not all organizations count as charitable. So, make sure you donate to a religious organization, a war veteran’s organization, volunteer firefighters, or any other organization that counts as charity. Keep in mind that our donation should meet a certain minimum amount in order for it to result in a charitable contribution deduction.

Make A Tax-Free Gift to A Family Member

Another great way to save money on your income tax return is by giving a tax-free gift for a family member. A gift qualifies as any transfer of money or money’s worth that is not received in return. Unlike it happens with charitable deductions, family gifts have a yearly limit amount that we mustn’t exceed. For the year of 2018, the limit amount per family member goes to $15,000 as an individual or $30,000 as a married couple. If our gifts qualify, we wouldn’t have to report it to the IRS as income, but we need to file the corresponding form to make it count.

Defer Your Performance Bonuses

If you earned a performance bonus this year, talk to your employer and see if they can defer such rewards. Receiving it in January 2019 instead of December 2018 might help you save some money on your tax return. This way, you will be able to report a lower income while still receiving your bonus next year. Keep in mind that you will still to report this as your income, but it wouldn’t be until your 2019 income tax return.

Four Essential Payroll Tips for Small Businesses 

One of the most important aspects small business owners must pay attention to is payroll. Not only ensuring their employees their payments are always on time but keeping track of payroll taxes, too. Depending on the size of our company, managing payrolls can become quite a pain in the back if not handled properly. Therefore, we have gathered four essential payroll tips for small businesses to avoid suffering from such inconveniences.

As every business needs to receive some guidance every once in a while, our payroll tips for small businesses touch some important aspects to consider. From getting professional assistance to budgeting including taxes, depositing taxes on time, and keeping up with payroll tax updates, we’ll offer the insight your company might be needing.

Don’t Hesitate to Get Professional Assistance

One of the most valuable and relevant payroll tips for small business is getting professional assistance instead of taking over. It might sound better to take care of payrolls by ourselves when we are just starting a company. Nevertheless, few things require as detailed and accurate handling as payroll does. Not only would our employees be affected by our mistakes, but our business would too. So, in order to avoid possible legal action against us or penalties from the authorities, we recommend hiring professional assistance.

Set Your Payroll Budget Including Taxes

Another essential tip to keep in mind is setting our payroll budget apart. Also, making sure we are including the corresponding taxes is a must. We want to make sure that our payroll is always complete and always on time, but more importantly, always compliant. Since payroll taxes might vary depending on your state, including those rates on your budget is strongly recommended.

Make Sure You Deposit Federal and State Taxes On Time

Speaking of taxes, one of the worst mistakes a company can make is failing to deposit the corresponding payroll taxes. In order to avoid being subject to penalties and fees, make such deposits at the same time we deposit payroll checks. If we already budget payroll including taxes, depositing that part of the budget can also help us avoid using it to cover other expenses.

Stay Informed on Payroll Tax Updates

Laws and regulations that supervise payroll taxes, just as other regulations, are constantly under revision and changes might happen unexpectedly. This is why we need to make sure we stay as updated as possible on this matter. When we don’t have the time nor the means to stay on top of tax updates, having professional guidance comes in. When we hire the services of a professional tax broker, we can make sure we’ll remain informed and compliant. Besides, the more we know, the easier it gets to develop smart tax planning strategies.

How to Get an ITIN Number: What You Need to Know About Your Tax ID 

Filing our income tax return is an essential part of being a citizen of the United States. The Internal Revenue Service (IRS) requires every individual that generates income in the US to report such income by the month of April. In order to file such a report, we need to obtain a tax identification number issued by the IRS. If we can’t qualify for a Social Security Number, we must apply for the Individual Taxpayer Identification Number. That’s why we need to make sure we fully understand how to get an ITIN number issued by the IRS.

Before starting the process, however, we need to know what exactly an ITIN number is. We should also be aware of the reasons why we might or might not need a Tax ID number. Then, we will be able to explore the different options available on how to get an ITIN number.  If we are operating as a business, though, we need to apply for the EIN number instead.

What Is an ITIN Number?

An ITIN number, or Individual Taxpayer Identification Number, is a nine-digit number that the Internal Revenue Service issues for those individuals who do not qualify for a Social Security Number. The IRS issues this number to enable individuals to file their income tax return every year. We must remember that we can obtain our ITIN number regardless of our immigration status. Thus, the IRS will not share taxpayer information with immigration agents under any circumstance. However, obtaining an ITIN number does not automatically gives us the authorization to work in the US.

Why do You Need an ITIN Number?

Any person that is receiving an income that generates in the US needs to file their income tax return. Those individuals who do not qualify for a Social Security Number need to apply for an Individual Taxpayer Identification Number. The IRS issues ITIN numbers in order to enable individuals to comply with the US tax laws and requirements.

People in a wide range of circumstances are eligible to apply for an ITIN number. For example, resident and non-resident aliens filing a US tax return are both eligible for an ITIN number. Also, a dependent or spouse of a US citizen or resident alien, as well as a dependent or spouse of a non-resident alien can apply for this tax ID number.

How Can You Get an ITIN Number?

There are different ways for us to apply for an ITIN number if we need to. The first thing we need to know on how to get an ITIN number, however, is the type of form we need to file. As the IRS website states, we need to file Form W-7, Application for Individual Taxpayer Identification Number, including a couple of documents. Such documents must be original or certified copies that prove our identity and foreign status.

In order to apply for our ITIN number, we have the option of mailing our W-7 with our tax return. We also need to include a proof of identity and foreign status documents to the IRS offices. We can also apply through a Certifying Acceptance Agent or making an appointment at an IRS Taxpayer Assistance Center. After we submit our application, it takes around seven weeks in order for us to receive a letter with our ITIN number.

We can always contact the IRS directly in case we have any questions or doubts regarding the process or status of the application.