Medical expenses can represent a significant portion of our yearly income, with the average American spending almost $10,000 a year on health care. This might sound like quite a financial burden since there aren’t many options available when we need to cover medical charges. However, medical expenses can be deducted from our income tax report, which can give us a hand when the time to file our taxes arrives. Here’s what you need to know about deducting your medical expenses.  

The very first aspect we need to understand when it comes to deducting your medical expenses is the deduction value that the IRS allows. Starting this year, taxpayers will be able to deduct the medical expenses that exceed 10% of their adjusted gross income. The AGI consists of your taxable income minus any adjustments like deductions or contributions. If your AGI equals $56,000, and you spent $9,500 in health care expenses, you’d be able to deduct the expenses that exceed $5,600, which equals $3,900 in this scenario.  

Another important aspect we need to be aware of is the types of medical expenses that can qualify as deductions, and which ones can’t. There are several expenses that the IRS allows to be deducted as medical expenses, including: 

• Preventive care 
• Treatment 
• Surgeries 
• Dental and vision care 
• Visits to psychologists and psychiatrists 
• Prescription medications and appliances 
• Travel expenses for medical care 

On the other hand, there are other health-related expenses that do not qualify for deductions, such as cosmetic procedures, non-prescription drugs with exception of insulin, general health products like toothpaste and vitamins, as well as medical expenses that may be reimbursed, whether by your employer or your insurance company.  

If you want to apply for the deduction of your medical expenses for this year, you need to learn the process of claiming such deduction. To begin with, you need to choose an itemized deduction instead of a standard deduction. Keep in mind that you can only opt for an itemized deduction when it will exceed the standard deduction, so remember to consult with your tax prepared beforehand. In order to itemize your deduction, you will need to use Form 1040 and attach the Schedule A form, on which you will report the total you paid for medical expenses during the year and your adjusted gross income.  

When it comes to taxes, there are only a few moments of calm for taxpayers, as taking a breath of relief after filing their taxes is only the sign of the work that needs to be done to start preparing for next year’s return. Because of the tax code changes that resulted from the Tax Cuts and Jobs Act, we need to be aware of how they will affect our income tax return when the time to file next year arrives. This way, we will be able to make the most out of our 2019 tax practices, maximizing our credits, deductions, and refunds.  

One of the biggest changes that took effect this year is the shared responsibility payment, also known as the individual mandate penalty. This payment applied to those who were required to have health insurance under the Affordable Care Act but were not able to get coverage nor qualify for an exemption, either. Because of the Tax Cuts and Jobs Act, the penalty will no longer be charged, so if you don’t have health insurance this year, you won’t have to worry about covering this payment along with your taxes. 

Another relevant change that we will notice next tax season that is also a result of the Tax Cuts and Jobs Act is the rise in the medical expense deduction threshold. In order to obtain this deduction, the total of medical and dental expenses must be 10% of our adjusted gross income, when it used to be 7.5%. As a result, it will be harder to qualify for this deduction. Thus, if we were thinking about applying for it, we need to plan it a bit better this year.  

The Tax Cuts and Jobs Act also caused the elimination of a quite useful deduction, which was the alimony deduction, taking effect in 2019. This means that alimony payments will no longer be deductible for any divorce or separation agreement being made or modified this year or in the future. As a result, spouses that pay alimony will not be able to write off these expenses, and spouses that receive alimony will not have to count such payments as part of their income next year.  

To end things on a better note, there is a change to the tax code that might be helpful for those with a retirement account. This year, the contribution that you make to those accounts, including 401(k)s and IRAs could be deductible on your income tax return for next year. These are the 2019 contribution limits:  

• 401(k) base contribution: $19,000 (up from $18,500 last year) 
• 401(k) catch-up contribution (for taxpayers age 50 and older): additional $6,000 (unchanged) 
• IRA base contribution: $6,000 (up from $5,500) 
• IRA catch-up contribution (for taxpayers age 50 and older): additional $1,000 (unchanged) 

If you want to stay up to date with all the changes and updates to the tax code, don’t forget to get in touch with your tax advisor. They are the experts and can help you take advantage of all these changes and modifications.  

Everybody can use a hand when it is time to file your taxes. Luckily, we have plenty of time ahead of us, as tax season for 2018 just finished, so we’re in time to start preparing for next year’s season. In order to make the process much easier and simpler, we can start planning ahead and preparing for it in advance. This way, we’ll make sure we have everything in order, and that we are taking advantage of every single tool and resource taxpayers have available.  

Tax-advantaged accounts are a great way to maximize our deductions, and different accounts like 401(K)s, IRAs, and HSAs give us the opportunity to make tax-deductible contributions. This way, we can both enjoy the time when we reach retirement age and have significant tax savings. Before opening one of these accounts, consult with your tax advisor and make sure you understand how each of them works.  

Keeping our paperwork clean and tidy can sound like a monumental task to complete when we have the clock running against us. Therefore, we should always keep this in mind and maintain an organized and accurate document cabinet. Having all your employer forms, contracts, loan interests’ statements, and receipts in one place will make the process of filing your taxes feel like a walk in the park. Just remember to be consistent and keep a record system throughout the year.  

Luckily for taxpayers, the IRS has developed different tools and resources that can be of great help when making important tax decisions. Choosing between the standard and the itemized deduction, our filing status, and whether one of our children or even someone else qualifies as a dependent or not can get confusing. These tools and resources are planned to assist taxpayers to compare and contrast different tax-filing scenarios and then decide which would be more convenient.  

Waiting for the last moment is one of the worst decisions we can make at the time of filing our taxes. Thus, we should always take the time to get our paperwork ready, double check each form, and submit our taxes in a timely manner. The best way to make sure we don’t wait until it is too late is by hiring a tax advisor that can help you stay up to date with your paperwork and other documents. This way, your next tax season will go by smoothly and without much trouble.  

This year’s tax season is over for the 103 million taxpayers that were able to file their taxes before the due date of April 15. However, many taxpayers are unhappy as they received a smaller tax refund than they had anticipated. According to the IRS, they paid a total of $220.7 billion in tax refunds as of April 5th, which is $6 billion less than last year. Thus, the average refund check amounts to $2,833, meaning $30 less than the average check from the previous year. Receiving this not so great news has caused confusion and stress to the millions of taxpayers that were counting on bigger checks.  

This is the first that taxpayers submitted their tax returns under the new Tax Cuts and Jobs Acts, which can help explain why their refunds didn’t work as they had during previous years. There are many different elements that can help us understand better what changed from last year. These include changes in your income or tax rate, changes on your state and local income tax rates, and possibly losing different tax cuts and deductions.  

There are different life events that could have come into play, resulting in a lower tax refund. For example, if you took an additional job that qualifies as a non-wage income. This is the highest self-employed tax rate, and that could have had an impact on your refund. Other changes could include: 

• Selling investments 
• Changing your filing status from last year’s 
• Unemployment income being taxed 
• Getting a significant raise with your W-4 Form staying the same 
• Receiving Social Security benefits or Roth IRA distributions 

State and local income tax deductions also changed from the year before. This means that tax year 2018 had a new cap or limit on state and local property taxes, income taxes, and sales taxes. Therefore, if you live in a state with high income taxes and property value, your SALT deduction might have been smaller than the previous year, when there was no cap on this deduction.  

Besides the change in the SALT deduction, there are other deductions and credit that we might have missed this year. One example can be the $2,000 Child Tax Credit. If any of our children happened to turn 17 in 2018, or has an ITIN, they are no longer eligible for such credit. We might have qualified, however, to a smaller $500 Credit for Other Dependents, which still represents a $1,500 credit difference. Other examples of commonly-lost deductions and credits include: 

• Having paid off our mortgage and not being able to deduct mortgage interests 
• Not qualifying for the Earned Income Credit this year 
• Having paid off a student loan and not being able to deduct loan’s interests 
• Not being eligible for some of the education credits we got on previous years.  

If you feel that none of these examples apply to your case, don’t hesitate and get in touch with us. We will look into your particular situation and help you figure out what exactly happened that caused receiving a smaller tax refund this year.  

It’s been a couple of days since the IRS tax filing date was due, which means that, if you forgot or didn’t have time to pay your taxes, you must start thinking about the consequences you might be facing. We should remind you that the longer you wait, the more severe the penalties will be, so try to find the time to pay your taxes to avoid a situation that will not be favorable for you. These are some of the consequences you might be facing if you didn’t pay your taxes on time.  

The very first aspect we must keep in mind is that, if we didn’t pay our taxes by the April due date, which was last Monday, we will be subject to interests and late fees. The IRS charges a failure-to-pay penalty that consists of 0.5 percent of your total balance per month. The maximum percentage that they can charge, though, is 25% of the total balance you owe. This is why it is important to cover our taxes due as soon as we have a chance.  

Besides the late payment penalties we will be subject to, we will also have to pay for interests. Interests are charged based on the federal short-term rate, plus 3 additional percentage points. We should remember that these are daily compounded interests, which begin on the day our tax payment was due. This means that your balance will increase rather quickly, so we should make sure we delay our payment the least time possible, or we will be subject to a much higher balance.  

For those who requested an extension, even when it might have been granted, such an extension doesn’t apply to our balance due. This extension only applies for submitting our income tax report, but if we are expecting to have a balance owed, we need to cover such balance by the April due date. In order to do so, we must fill out Form 4868 so we can pay an estimated amount. The advantage of doing so is that we don’t have to cover the full balance, and if we cover at least 90% of our due balance, we might be able to avoid the failure-to-pay penalty, which does give us extra time to pay the full amount.  

If we are going through financial hardship, the best way to go is to request a payment installment agreement with the IRS instead of simply failing to pay our balance. Besides the extra time and the convenience installment agreements provide, this also reduces the interests we pay, and the rate drops from 0.5% to 0.25% per month. This way, we will make sure we’re minimizing the penalties we are having to cover while still being able to pay out our balance, keeping us safe from much tougher situations, like having our property and bank accounts seized by the IRS.  

As the Internal Revenue Service mentions, approximately a quarter of Americans wait until the last two weeks before the deadline to prepare and file their income tax report. If you are part of that 25% of the population, there are only two possible routes of action, either get around it and prepare your taxes before Monday or request an extension. This way, you will be able to avoid failing to report on time, which would represent getting fines and interests when you finally come around it. Whichever you might choose, we have prepared some important last-minute tax tips you should keep in mind before the deadline arrives.  

Regardless of when we are preparing our tax returns, we must remember that organization is a key element of this important process. It will help us save time and money as we know where every receipt and useful paper are. Keep all your receipts in one place, including those for purchases, payments, business expenses, healthcare, and education. Also, make sure you have all the forms you need, such as Form W-2, which shows your earnings and taxes withheld by your employer.

Whenever we are running low on time, filing our tax returns online is the best way to take advantage of every single minute. This is the most convenient, accurate, and accessible way to file your income tax, and since 1990, almost 1 billion people have filed their taxes electronically. Besides, the vast majority of taxpayers actually file this way, either by themselves or with the assistance of a professional tax preparer. Besides the advantage of accuracy, filing our tax online can also mean a faster refund. 

It is not uncommon to make easily avoidable mistakes when we are preparing our tax return, especially when working against the clock trying to have everything ready. So, make sure you don’t end up overlooking any of these errors since even the simplest one can cause a delay in our refund. The most common tax mistakes include math errors, which can be prevented using a calculator or any tax software, writing our Social Security Number incorrectly, and even forgetting to sing a form. Keep your eyes open and proofread everything.  

With less than a week in the calendar before the deadline is here, having an alternative might be the best route to take for some. If we believe won’t be able to make it to April 15^th, considering an extension request could work out for us. When we apply for an extension, this means that we have until October 15^th to finish preparing our taxes. However, we must remember that an extension does not grant us more time to pay our owed taxes, so we still need to cover our balance by April. If we were looking for a payment extension, we should contact the IRS and request a payment plan instead.  

There are many different misconceptions that some of us might believe, whether because of lack of information, or because we heard someone close to us repeat them. However, debunking this common tax myths will help us have a better understanding of how taxation in the US actually works. We will also feel more confident and trusting of the system, knowing that our taxes are being put to good use.   

To begin with, one of the biggest and most common tax myths is that getting a tax refund is a bad sign. Also, many people still believe that earning more money will make us end up paying more taxes. The way the government spends tax funds is a big and understandable concern but thinking that most go to foreign aid is simply wrong. Lastly, assuming there are plenty of loopholes that benefit the rich and keep them from paying taxes also isn’t accurate.   

Tax Refunds Are a Bad Sign  

Among taxpayers, it isn’t really uncommon to hear some of them getting worried about receiving a tax refund. The idea behind this myth is that you ended up overpaying taxes because the government took an interest-free loan from you. However, this is most definitely not the case. There are many different reasons why you are getting a tax refund, and you should put it to good use. We would spend away small tax refunds, but we can use bigger ones to invest them or pay off debt.  

The More You Earn, The More Taxes You Pay  

One of the most interesting common tax myths is that the more you earn, the more taxes you will pay. This might sound logical at first, but when we understand how tax brackets work, it doesn’t anymore. We can move up from one tax bracket to a higher one when we receive a raise, for example. Nonetheless, thanks to marginal tax brackets, these brackets do not apply to our entire income, only to that marginal amount.   

Most Tax Money Goes to Foreign Aid  

As responsible taxpayers, it makes sense to be concerned about how and where the government is spending our tax money. However, one of the most common tax myths is that the government spends 10% of tax funds on foreign aid. The truth behind this myth? Only 1% is used to aid foreign countries. In case you are wondering, the programs that receive more tax money are Medicare, Medicaid, and other similar programs, getting 26%. Social Security receives 24%, Defense and Security receive 15%, and the Safety Net program receives 9% of tax money.   

The Rich Avoid Paying Taxes through Loopholes  

This has been a common topic of debate, especially since the new tax law came in effect. Besides, Alexandria Ocasio-Cortez’s 70% tax threshold proposal added to this discussion. Many people believe that there are several loopholes within tax laws that benefit the rich. Even when loopholes do exist, they aren’t as many as people believe. Interestingly, such loopholes only benefit the super-rich who earn millions through investment income. Thus, tax-efficiency investment accounts may be what allows such loopholes to work, and not really tax law.   

There are still a couple of weeks left to file our income tax report on time and avoid interests and fines. Thus, if we haven’t had the chance to get around it, we still have some time left to take care of such an important matter. However, if we are freelancers or entrepreneurs working on our own company, this might be of great help. We are putting together three useful self-employed tax tips you should keep in mind before filing your income tax report this year.   

We have talked about many different tax credits and deductions available for tax payers, but these are some particularly interesting self-employed tax tips for solopreneurs. For example, deducting house expenses that result from home office activity. Also, health insurance expenses might also be deductible in some cases. Lastly, any education or training expenses that help us develop our current skills can be deductible too.   

Home Office Deduction  

Being self-employed and running your own business is not a difficult task. There are many challenges and situations one must face and overcome, including finding the right location. For many freelancers, working from home is the best way to start a business and keep it running without worrying about having to pay for rent. As a result, you might be able to get a tax break for home office expenses.   

In order to deduct these expenses, you need to calculate the percentage of your home and services that you use exclusively for your business. So, if your home office takes 10% of your house’s square footage, that is the percentage you can deduct. This deduction applies for rent, utilities, insurance, and any other expense that results from working at home.   

Health Insurance  

You might be eligible for a health insurance self-employed deduction, but only in some cases. So, if you signed up for an insurance policy that would cover you, your spouse, and any children younger than 27, this might work for you. This deduction can also apply for dental insurance if you got that too.  

Since this one works as an adjustment to income, there is no need to itemize our income report. However, we might not be eligible in some particular scenarios we should keep in mind. For example, if our spouse already had some kind of coverage plan and we didn’t enroll on it, we could lose this deduction. Especially if their plan was more expensive than the one we got. Therefore, we need to consult with a professional to see if we qualify or not.   

Education Expenses  

It takes a lot of training and preparation to successfully run a business, especially when we are self-employed. Thankfully, we can deduct the expenses of qualifying work-related education and up training. These expenses include tuition, books, lab fees, supplies, transportation, and any other class expenses.   

In order to be eligible for this deduction, this education or uptraining must help us maintain or improve any skills we need in our current job. So, if we are studying to change careers or only to satisfy the minimum level of education required in a job or industry, we might not be eligible for this deduction.   

Remember that the end of tax season is almost here, so if you have any questions about these self-employed tax tips, or any other step of the process, don’t hesitate and get in touch with us.   

There are many consequences we can face if we fail to file our taxes or pay our due balance. These consequences can come in the form of interests and fines, for example. However, another consequence that can come as a result of serious tax debt is the revocation or denial of our passport. Even when this has been in the books for some time, the IRS has been trying to inform and educate taxpayers about the possibility. 

Facing the revocation or denial of our passport isn’t a very common situation. This could only happen when we accrue a seriously delinquent tax debt. Nevertheless, there are different payment plans and programs we can look for. There plans could help us manage our tax debt better. Besides, there are other options available that can help us out, too.  

Revocation or Denial of Passport due to Serious Tax Debt 

Whenever we find ourselves with a seriously delinquent tax debt, the IRS can revoke or deny a passport request. However, we must keep in mind they are not directly in charge of doing so. What happens is that the IRS notifies the State Department of such a debt. Then, the State Department is responsible for the revocation or denial of a passport.  

This is not a very common scenario, though. A tax debt must be of more than $52,000 in order for it to be considered a seriously delinquent tax debt. This balance includes penalties and interests, of course. IF such was the case, the IRS should notify any taxpayer by sending the notice CP508C.  

Payment Programs and Alternatives for Tax Debt 

The IRS offers many different payment programs and plans that can help us pay off any serious tax debt. Frequently, though. Most tax payers qualify for either a payment agreement or an offer in compromise. If we request a payment agreement, we can divide our balance into installments to cover every month.  

However, there are some taxpayers that might qualify for an offer in compromise. This means that we could reach an agreement between the IRS and ourselves in order to cover any serious tax pay. The advantage of an offer in compromise is that we can settle liability for an amount below the current tax amount we owe.  

Other Options Available for You 

If we cannot qualify for a payment arrangement or an offer in compromise, there are still other options out there. For example, the IRS cannot certify any taxpayers as seriously delinquent if the taxpayer has filed for bankruptcy. If you suffered from identity theft or are currently going through a financial hardship, such tax debt doesn’t count, either.  

Negotiating an installment with the IRS could be an option, even when we don’t qualify for an actual payment program. This way, we can reduce the debt and keep it from becoming seriously delinquent. Becoming a permanent resident of a foreign country could be another way to avoid falling such a debt status.  

Regardless of the situation, always remember to consult with a tax professional. They will be able to provide you with the required assistance and guidance in this kind of problems with the IRS. 

Even when most of us are expecting a tax refund, getting an unexpectedly high bill from the IRS is possible. Since we might be receiving an unpleasant surprise, thinking of convenient tax payment options to cover our balance is essential. This way, we’ll make sure we’re taking care of any possible debt with the IRS beforehand. If we don’t, we might find ourselves subject to different interests and fines.  

Some of us might have enough in our savings to cover our IRS balance, yet there are other convenient tax payment options we can take advantage of. The most common one would be using our credit card to make the payment. If we don’t have one, though, applying for a credit card or personal loan can be another option. We can also ask for an installment plan with the IRS so we can cover our tax balance.   

Use Your Credit Card  

One of the most convenient tax payment options to cover our balance is using our credit card instead of cash. This gives us the opportunity to have some extra time to cover our balance. We all know credit cards can be really helpful yet dangerous if we’re not careful. If we decide to pay the IRS with our credit card, we must remember to pay the card’s bill entirely. Otherwise, we would start accruing interests and even late fees if we forget to pay on time.   

Apply for A Credit Card with 0% Interest  

If we have been thinking about getting a credit card, this might be the perfect time to apply. As we mentioned above, credit card payments can be quite convenient tax payment options as they give us some extra time to actually cover the given amount. Getting a card that offers an introductory 0% interest rate sounds too good to be true. However, some banks tend to have this kind of specials available every once in a while.   

Get A Personal Loan  

Another way to get funds and pay our tax balance is through a personal loan. Depending on our debt to the IRS is the type and amount of the loan we will ask for. We should also keep in mind that, if we don’t pay it on time, we will be subject to interests and some other fees. This is the opposite of what we want, so we must remain careful and consider our expenses.   

Work an Installment Plan with the IRS  

Last but not least, the IRS has many payment options and installment plans available for taxpayers. These installment plans are offered in order to help us avoid interest charges and monthly late fees. If we fail to file our taxes on time or pay the balance we owe by the due date, we are subject to such charges. Thus, the IRS designed payment plans for both individuals and businesses. You can see if you are eligible or not directly through their website.