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Tax Services

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.

 

Four Useful Tax Planning Tips for Small Businesses 

Being able to properly manage the finances of a business is one of the biggest challenges that small business owners face. A key element of efficient financing is developing adequate tax strategies that will ensure compliance and savings. This is why we’ve gathered four useful tax planning tips for small businesses that should help you to stay compliant while facilitating deductions.

Such tips include creating a tax planning calendar, keeping track of all your expenses, and conserving relevant documents. Also, we shouldn’t forget about hiring professional help to handle our company’s taxes. Here are four useful tax planning tips for small businesses.

Create a Tax Planning Calendar

One of the most practical tax planning tips for small businesses is creating a tax planning calendar. This will help us to keep track of important dates and avoid missing headlines. The Internal Revenue Service has an online calendar available for businesses and self-employed that can be of great help. Having a tax calendar is a great way to ensure compliance and submit any relevant form on time.

Keep Track of All Your Business Expenses

Another essential aspect of successful financial management for small businesses is keeping track of all our business expenses. This is also a great tip for efficient and practical tax planning strategies. When we have an accurate and detailed record of every expense that we generate throughout the year, filing our tax return will become an easier task. There are several apps available, specifically designed to help business owners to record and document their expenses.

Make Sure You Conserve Relevant Documents

When we file our business income tax return, we must keep in mind that there are several expenses which can be deductible. Besides keeping track of expenses like payrolls, equipment repairs, or business trips, there are other services we can include. One example would be our business insurance policies.

Even when the expenses might be on the record, we must have a copy of our policies to prove such payments. If we are renting an office or using part of our house as one, showing leases and property documents, utility bills, and other documents will help.

Hire a Professional Tax Consultant

Lastly, one of the most overlooked tax planning tips for small businesses is hiring the services of a professional tax consultant. Having the assistance of an expert available is the best way to ensure efficient tax planning. We must keep in mind that professional tax consultants must be knowledgeable when it comes to IRS compliance. Besides, having a tax advisor available will help us come up with the best tax planning strategies. This, in turn, will result in significant savings for our businesses and companies.

Employer Identification Number: How to Get your Business Tax ID 

One of the most important steps of starting a business is ensuring compliance with the Internal Revenue Service’s (IRS) office. Such compliance requires you to obtain your Employer Identification Number (EIN), or Business Tax ID. This number is unique to your company just like your Social Security Number is to you. The IRS will need this number in order to identify your company and keep track of your tax reports and requests.

Despite popular belief, obtaining our Employer Identification Number is a simple and efficient process. But before we submit our request, first we need to understand what exactly this number is and why we need it. Then, we’ll go over the steps to submit our EIN request.

What is the Employer Identification Number?

The EIN is a unique nine-digit number that the IRS provides to companies and corporations with operations in the United States. The IRS assigns this number to businesses in order for them to identify the company and keep track of tax forms and documents. It is similar to the Social Security Number (SSN) or the Individual Taxpayer Identification Number (ITIN) for individuals.

Besides businesses, the IRS can issue an EIN to employers, sole proprietors, corporations, partnerships, non-profit organizations, trusts, estates, government agencies, and any other business entity.

Why Do I Need an Employer Identification Number?

There are many reasons why our business might need to request an Employer Identification Number beside taxes. Several banks, credit unions, and other financial institutions will ask for the EIN before opening a business account. Getting a business loan, a line of credit or another type of financing might require having an EIN, too.

Also, when we work as self-employed entities or independent contractors, an EIN might work as a valid ID for our clients. This way, we keep our personal SSN safe, and we even look more professional than without.

How Can I Get My Business Tax ID?

Requesting and obtaining our Employer Identification Number is not a complex process, as one may think. The IRS has four different channels through which we can apply for the EIN. Before you begin the process, we recommend this article on how to apply for your business tax ID. Then, you can decide whether to apply online, over the phone, by fax, or by mail.

When you apply online, you will receive your EIN immediately after your information has been validated. In order for you to be able to apply online, you must have a valid U.S. ID number, and your business must be located in the U.S. or territories.

To apply over the phone, you must call the Business and Specialty Tax line between 7:00 am and 10:00 pm, Monday through Friday. Once they have received and validated your information, you will receive your EIN by the end of the call.

To apply by fax, you must complete and send Form SS-4 from your state fax number. This way, you can receive your EIN within the following four business days. When we apply by mail, we must send the same form to the corresponding IRS office. Our EIN is delivered within four weeks.

 

Tax Planning for Retirement: Aspects to Keep in Mind 

Preparing for our retirement is one of the best, smartest financial decisions we must take care of. Giving an early start will only bring benefits in the long run. Which is why we should always consider one of the many strategies of tax planning for retirement. Knowing how each work will help us be more prepared for the future. It will also help us make an informed decision regarding how we want to allocate our savings for when we need them.

Some of the most common strategies of tax planning for retirement include our social security check income, having a 401(k) plan, IRAs, and tax credits for the elderly. There are other options available, but we will only focus on these four.

Social Security Check Income

Most of us make payments to the Social Security program during our years of career. Once we are eligible to start receiving our Social Security check, though, such income might be subject to taxes. A good strategy for tax planning for retirement regarding social security income is being aware of our adjusted gross income. In order to avoid or reduce taxes on or socials security check we need to avoid hitting certain caps. For example, if we hit $25,000 as single or $32,000 as a married couple, our Social Security Check starts becoming taxable.

401(k) Plans

Several employers offer this retirement plan on which they make contributions that will later become retirement resources. This is a particularly interesting strategy of tax planning for retirement because of the options it offers. With a traditional 401(k) plan, our contributions will be made from pre-tax amounts, but any withdrawal will be subject to taxes. With a Roth 401(k) plan, however, our contributions come from after-tax amounts, but withdrawals aren’t subject to taxes.

Individual Retirement Accounts (IRAs)

Another very common strategy of tax planning for retirement is getting an Individual Retirement Account, or IRA. Just like 401(K) plans, there are two versions of IRAs that we should consider. You can opt for a Traditional IRA or a Roth IRA for your retirement funding. Similar with 401(K) plans, you can make contributions to your Traditional IRA account with pre-tax money but having withdrawals subject to taxes. If you decide to go for a Roth IRA, your contributions can come from after-tax money, avoiding taxes on withdrawals. The amounts of our contributions and other restrictions might depend on the adjusted gross income we report, as well as whether we have individual or joint accounts.

Tax Credit for the Elderly

The last alternative for tax planning for retirement includes claiming a tax credit that the IRS offers. If you are 65 or older, or if you retired on a permanent and total disability, you can be eligible for this credit. There are several limits that we can’t pass in order to qualify for this credit, though. To begin with, if we are married, our spouse needs to file a joint return with you in order to qualify. Also, our income can’t go over a certain amount in order to qualify for this credit. You can consult all the details here.

 

Tax Extension Due by October 15th, 2018 

Income tax season finished on April 15th, and by that time, most of us should have filed our tax return. However, there might have been different cases on which such due date wasn’t met. Actually, this was the case for 14 million Americans who requested to have a tax extension, according to H&R Block. And even when filing for this 6-month extension might bring several benefits, we must pay attention no to miss the date.

In order to make the most out of the federal tax extension that is due by following Monday, we need to understand a couple of things. First, we need to know how the tax extension works. We should also be aware of the possible penalties we might face should we miss the extension date. Also, it is important that we remember the IRS offers payment plans and alternatives, just in case we need one.

How Does the Tax Extension Work?

There may be different situations that can impede the timely filing of our income tax return. Missing the April 15th due date happens more often than we think, and the Internal Revenue Service is aware, too. Luckily, there is a federal tax extension form that will grant a 6-month delay on April’s due date.

This is called Tax Form 4868, Application for Automatic Extension of Time to File U.S. Income Tax Return, and you can download it from the IRS website directly. To request the extension, just download the form, and mail it to the IRS once you’ve filled it. You can also do this electronically using tax software.

What Happens If I Miss the Tax Extension Due Date?

Once the IRS has granted the tax extension, we have until October 15th to file our taxes. One important aspect to consider is that the extension does not apply for any payments due. It will only give us extra time to finish the paperwork, but any amounts that we owe the IRS should be paid in April.

We should keep in mind that there are different penalties for not filing our tax return and nor paying them. If we missed the date to file our taxes, we’ll be subject to a penalty of 5% of the unpaid balance. This penalty has a limit of 25% of the tax balance we might have. If we filed our taxes but didn’t pay them, we’ll be subject to a penalty of 0.5% of such unpaid balance, with a limit of 25% also.

Are There Any Payment Plants Available?

The IRS is well aware that there might be situations beyond our control that can impede a timely payment. That’s why they offer different payment plans and alternatives that should enable us to cover any pending balance.

A Short-Term Payment Plant allows you to cover any balance you have in 120 days or less after the due date. This helps limit the penalties and interests you would accrue and doesn’t include any additional fees.

A Long-Term Payment Plan allows you to pay your balance in more than 120 days through automatic payments. This plan does include a fee of $31 if we apply for it online. It also comes with a $107 fee if we apply by phone, mail, or in person.

 

 

Four of the Best Mobile Apps for Taxes  

We can all agree that filing taxes can become a stressful and overwhelming process. Going over boxes and more boxes of receipts isn’t anyone’s favorite activity. However, there are several mobile apps for taxes that can and will simplify the process enormously. During the last couple of years, mobile apps have become much more functional, powerful, and accessible than ever. Even when this kind of software can’t replace the experience and knowledge of CPAs, apps can still get the job done.

Whether we are self-employed and trying to keep track of our books, single or married individuals filing our taxes, or small business owners, these apps should be of great help for the coming tax season. From the popular Turbo Tax, Intuit’s QuickBooks, H&R Block’s, and even the official IRS app, these are four of the best mobile apps for taxes.

Intuit Turbo Tax Mobile App

Turbo Tax is one of the most popular tax preparation software there are available. Their free version allows you to file your 1040A and 1040EZ forms without a problem. If you purchase the Deluxe edition, though (which is also the most popular one) you can maximize your tax deductions and even submit charitable donations into deductions.

Their Premium and Self-Employed versions are ideal for small business owners and freelancer who might need more personalized assistance. The Turbo Tax Mobile App is available for both iOS and Android devices, so you can use it regardless of your equipment.

H&R Block Tax Prep

Looking for convenient alternatives when filing our tax return is essential. Thanks to the H&R Block Tax Prep app, we can get convenience and peace of mind altogether. This app has the option of taking a photo of your W-2 form to scan it, saving time and money.

Not only that, but you also get free assistance from one of the H&R Block representatives. However, H&R Block designed this app to help filing income taxes for federal and state returns. If you need more advanced filing, you will need one of the more complex mobile apps for taxes.

Intuit QuickBooks Self-Employed App

Being self-employed comes with many great benefits and advantages. But keeping track of payments and expenses can eventually become an overwhelming task. That’s why Intuit’s QuickBooks Self-Employed app is one of the best mobile apps for taxes. It will allow you to snap pictures of all your receipts, and then export those for your tax deductions. Intuit created this app with freelancers and small business owners in mind. So, if you have multiple income sources from clients and customers, QBSE is the right app for you. You can purchase the app alone or go for the QBSE and Turbo Tax apps bundle.

IRS2GO

What better way to file your tax refund than using the official Internal Revenue Service’s own mobile app, IRS2Go. It is one of the most complete mobile apps for taxes there are. Even though you can’t really submit your tax forms, the features it offers will definitely simplify the process. IRS2Go allows you to check your refund status, make payments, and find professional tax assistance near you, too. Besides, during tax season, the app provides relevant updates to its users during business days. During the rest of the year, they share policies and other relevant tips to get prepared for the coming tax season.

Charitable Contribution Deductions: How Donations Count on Your Tax Return 

As the popular saying goes, it is always better to give than receive. When we make donations to charitable organizations, we never expect anything in return. However, charitable contribution deductions can apply towards your income tax return every year. There are several aspects to take into consideration, though, in order for our donations to be valid.

First, we need to know what kind of organizations will count for charitable contribution deductions. Then, we need to understand the ISR requirements for donations and tax return deductions. We also need to be aware of how much can be reflected on our tax return from charitable contribution deductions.

What Organizations Count for Charitable Contribution Deductions?

Americans give 2% of our income as donations to charitable and non-profit organizations every year. However, when it comes to charitable contribution deductions, we must pay attention to which organization we decide to donate. Since charitable organizations need to register through the IRS, not all charities and non-profits will count against your tax return.

According to Charity Navigator, donations to individuals, foreign governments, foreign charities, and even some private foundations do not count against your tax return. Some examples of organizations that do qualify, however, include religious organizations, war veterans’ organizations, volunteer firefighters, and civil defense organizations.

Are There Any Tax Requirements for Charitable Contribution Deductions?

The first requirement we need to consider is that we must file for itemized deduction in order to qualify for charitable contribution deductions. If we file a standard deduction, then our charitable donations won’t count against our tax return. This means that we will have to list all of our deductions, including items such as mortgage, state, and local tax, medical expenses, along with charitable donations.

Before we start filing our tax return, we should take care of some other procedural aspects. Even before making a donation, we must make sure the organization is a 501(c)(3) private foundation or public charity. In addition, we must keep a record of each and every contribution we’ve made to the organization, so keep the tax receipts they give you. If we made a non-cash donation, we will need a qualified appraisal of the property value.

How Much Will Be Reflected as Charitable Contribution Deductions?

Before talking about how much could be reflected as charitable contribution deductions, we must be aware that there are different amounts of yearly donations to be met. Such minimum amounts will depend on how we are deciding to file our tax return. If we are filing as a single person, or married but filing separately, we should have donated at least $12,000. Filing as head of household, the amount will go up to $18,000. If we decide to file jointly as married, then the amount will go up to $24,000.

Now, depending on our income and tax bracket is the amount of charitable contribution deductions we would be likely to receive. For 2018, the tax brackets remained with a number of seven different tax rates. These tax rates were 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Such brackets will depend on our total income plus the way we are filing our taxes, whether as a single person, a married couple, or head of household. In this case, if someone who belongs to the bracket of 37% made a $20,000 donation, they would see $7,400 reflected as charitable contribution deductions.