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.

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.

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.

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.

Working as a freelancer might be the dream of many of us. Being your own boss, deciding when, where, and how much you work sounds enticing. Deciding on how much or how little you charge for your work is another advantage, too. However, this professional path also has its downsides. One of them is having to pay freelancer taxes.

When you work as an employee, your employer takes care of almost everything. When we work on our own, the responsibility falls upon ourselves. This is why we bring you a short list of different aspects to consider regarding freelancer taxes. From your quarterly payments to home office and professional help, we hope these tips will be helpful for you.

Pay Your Freelancer Taxes Every Quarter

One of the most important aspects freelancers need to know is that you have to pay your taxes every quarter. Since you don’t have an employer to make these payments, you must submit your Quarterly Estimated Tax payment to the IRS every three months. The due dates may vary a little every year, but for the current tax year, the dates are the following:

• April 17, 2018
• June 15, 2018
• September 17, 2018
• January 15, 2019

You should keep a portion of your payments apart so you’re able to cover this payment. Most tax advisers recommend saving anywhere from 25% to 30% of your payments to cover the quarterly freelancer tax. Employers tend to cover somewhere around half of your corresponding tax payment. Since you are your employer, you have to pay for the whole amount.

Home Office and Other Expenses

When it comes down to the yearly tax return, it might be harder for freelancers to keep an accurate and well-documented record of income and expenses. This can sound obvious to some, but we can highlight enough the importance of keeping track of each and every payment we receive. We should also document every expense that is business related. From meals and transportation to stationary and any other equipment you need.

Home office expenses are also deductible, so keep that in mind. In order for the home office tax deductible to be approved though, there is some consideration to have. First, the area should be used as an actual home office. This is a part of your house where you run your business exclusively. Having a clear division between home and office is crucial. If you use a room of your house partially for home office, you should calculate the percentage of business use and personal use.

Hiring a Professional Always Helps

There are many other tips and tricks regarding freelancer taxes that are worth learning. So, we always recommend hiring a professional accountant or tax advisor. This can be especially useful for those who just began their freelancer career. Being aware and knowledgeable of current state requirements and regulations is an essential part of freelancer taxes.

Being your own payroll department might be simple for some. We shouldn’t underestimate the real value a professional consultant can bring. Besides, learning how to take advantage of freelancer taxes returns will be beneficial, not only for your pocket but your business too.

Preparing and filing our tax return can be a hassle. Especially when we don’t have a complete record of our expenses. This can also seem like a quite complex process if we’re doing it for the first time. That’s why almost 50% of us decide to hire an accountant and have them do the job for us. However, knowing how much to pay for tax preparation services might get tricky sometimes.

There are several aspects to consider before we decide to hire a professional accountant to do our tax prep for us. Also, there are many factors that can influence the rates that the accountant decides to assess. In order to understand how much to pay for tax preparation services without it being too much, we will look at 3 different concepts. First, we’ll look at average pricing for tax prep reports. Then we’ll take a deeper look into how exactly tax prep services are charged. Lastly, we’ll go over alternatives to hiring a tax prep pro.

What Is the Average Pricing for Tax Preparation Services?

It is not difficult to find the average costs of tax preparation services online. All it takes is a simple Google search and then checking a couple of websites to make sure the numbers match. Both Thervo.com and thebalance.com show reports from the National Society of Accountants. These reports state that the average price for submitting an itemized Form 1040 with Schedule A is $273, and if you don’t itemize it, it can go down to $176. Also, if you need an itemized Form 1040 with Schedule C, the price can go up to $457. You can consult the NSA website directly for average prices of other forms.

How Are Tax Preparation Services Charged?

More often than not, prices for tax preparation will vary, depending on each person’s situation and record. Most of the accountants will charge a fee for each form or schedule that needs to be filed. If you have worked with the same accountant before, they might charge the same fee than last year’s, plus an additional fee for any changes. Some prefer to go for a minimum tax return fee plus an additional one, depending on the client situation’s complexity. It is not uncommon, though, to be charged on an hourly rate, or even by setting a fee for each item of data entry.

What Are Alternatives to Getting a Tax Professional?

Last week we talked about Cloud Accounting and how you might benefit from them. We bring this up because hiring a professional to help you with your tax return might not be 100% necessary for some. Getting online tax preparation services might be a better idea for some, especially for individuals who already have experience in the matter and have a clean, organized record. There might be other apps and websites like Credit Karma Tax or Wave, that allow you to keep track of your finances, not only during the tax report season but throughout the year, too.

Technology keeps becoming more and more important in our everyday lives. The world of businesses keeps adopting ways to include it, too. After all, technology means growth, development; the future is technological. Cloud accounting is part of such technological growth. For years, accounting and bookkeeping, especially for small businesses, turns out to be a burden. This is why tax consultants and financial advise companies started to provide this service. However, with the development of accounting software, the need for professional accountants might not be as compulsory as it used to.

Originally, accounting software used to work on your company’s computer. Having to purchase, install, and master a new program resulted in having to spend money, time, storage, and effort. Cloud accounting solves most of these problems. In order to gain a full understanding, we need to analyze certain aspects beforehand. Here we will discuss what cloud accounting is, how it works, and how safe it really is.

What Is Cloud Accounting

Cloud accounting, or to be precise, cloud computing accounting software, is a type of software that assists businesses with their accounting and bookkeeping duties. The main difference between cloud accounting and regular accounting software is that the first stores its apps and clients’ information in the cloud. This means that instead of having to install a given program on your computer, everything is done online.

This can bring several benefits, especially to small business owners. Professionals consider cloud accounting quite cost-effective, as well as efficient in terms of time and storage. Cloud accounting can work as an alternative to hiring a particular accountant or bookkeeper, too.

How Does Cloud Accounting Work?

The way cloud accounting works can be quite similar to the way regular accounting software does. When we hire a cloud accounting firm or provider, we will have access to their network. This way we are able to upload the accounting information that needs to be analyzed. Instead of having to store all this data on our company’s computer, we can safely store it in the cloud. Then, all we need to access such information is a device with an internet connection.

Cloud accounting is one of the most cost-effective ways to do bookkeeping. Besides, many small, medium, and even large businesses are beginning to adopt such accounting services more and more. It also enhances information accessibility, and it keeps it safely stored, too.

How Safe Is Cloud Accounting

Despite the many threats that online services and internet connectivity have brought, cloud accounting has proven to be a safe option. To begin with, when we store sensitive financial information in portable devices like laptops, tablets, and even USB drives, such information becomes vulnerable. As anybody could lose or steal these devices, we don’t recommend storing sensitive information in them. With cloud storage, we know such cases are not possible. Besides, it provides additional back up of our data, which could be useful in case of an unfortunate event.

Just like any other online service provider such as online banking, security measures are taken with utmost care. State-of-the-art technology is used in order to keep sensitive financial information safe. Site encryption and multi-factor authentication are part of the online security measures that cloud computer accounting software providers implement along many other information security policies.

We must remind you that even when cloud accounting might be a solution that fits your business needs, having a professional accountant as part of your team is always recommended. That’s until computers end up permanently and efficiently replacing us if they do at all.

Being the subject of an IRS Tax Audit can be intimidating. No matter how well you keep your records, being under such scrutiny can still make you hesitate. Nevertheless, an IRS audit shouldn’t make you nervous. The most important aspect here is to make sure you have complete, accurate documentation of your financial activity.

There are three different types of IRS audit you could be subject of. A correspondence audit, on which the IRS basically asks you to send them information to correct their records. This is the easiest, fastest one. An office audit, which requires you to go to an IRS office and bring specific documents. With a field audit, though, an IRS tax officer will visit your place of business and request any file or document they might consider necessary.

Regardless of the type of IRS audit, they decide to carry out, you must consider these three key concepts. Having all your documents ready does nothing but help your case. A professional attitude is a must. Also, remember you can always appeal the results if you don’t agree.

Get All Your Documents Ready in Advance

Some might say that the most important aspect of filing your income tax return. This is something that shouldn’t really be done when the due date is coming, but all year round. Being able to keep an accurate, complete record of your income and expenses is the best way to avoid an IRS audit in the first place. If you keep a tidy record and still get a notice from the IRS, you have the peace of mind that your documents are all in one place.

However, if you need to go through the process of getting documents again, don’t worry. Just start gathering your information as soon as possible, to make sure you come up with a record as complete as possible. Get in touch with as many people as possible. Bank statements and paystubs shouldn’t be a problem to get. Banks usually keep statements up to 18 to 36 months old. If you’re not able to gather every paper, document your attempts to collect them anyway.

Be Confident and Stay Professional During the IRS Audit

When the time of the IRS audit comes, we recommend hiring a professional tax consultant. This will ensure the audit follows protocol as much as it should. Not only that, but you know they won’t ask more questions than necessary. More importantly, you make sure you don’t give more information than necessary, either.

If you decide to attend the audit by yourself, remember to remain confident and to stay professional throughout the meeting. If at any point you feel the tax auditor is asking more than required, remember you have the right to interrupt the meeting and ask for a tax consultant before going any further. This will not only give you more time to get any missing paper but make the audit loosen up a bit. You can use this in your favor if it happens.

Don’t Be Afraid of Appealing the Results

Once the audit has finished and the results disclosed, keep in mind you still have the option of appealing. Usually, requesting to speak with the auditor’s manager is all it takes for them to reconsider the resolution. After that, if the outcome is not what you expected, you can appeal the results through an IRS program called Fast Track Settlement. You will meet with an Appeals Officer and present your case. This can take a couple of hours, but the result might be in your favor. If you still can’t reach a settlement, you can still submit a formal protest with the IRS Appeal Division, but this might take more than 6 months.

At this point, the only action to take left is taking the case to court. Once you get here, they only give you 90 days to respond to the IRS Notice of Deficiency. If you fail to respond, the IRS will close your case and assess the results you were disputing.

This is why we always recommend hiring a professional tax consultant. This is the best way to avoid receiving an IRS audit notice. If you still get one, though, your tax pro will know how to handle the situation, and most likely, get a resolution that favors you.

If you ask your friends, your family members, and even your neighbors, most of them might say that you don’t need a tax consultant. After all, research shows that 33% of Americans take care of their tax report themselves. Another 56% say they hire a tax consultant to deal with the hassle instead. The missing 11% were apparently confused by the question. If more than half of the country decides to work with a tax advisor, it might be worth it.

There are several reasons why it makes sense to hire a tax consultant. Even when it might represent an additional expense on our budget, the advantages are more. Firstly, they are experts in the matter, they have to stay updated with IRS tax code changes, and they could even help you get a higher tax return.

Tax Consultants Are the Pros

Tax advisors are accounting professionals who must obtain different certifications in order to provide guidance and consultation services. They must pass different annual regulatory tests to keep their licenses, too. This means tax consultants are more familiarized with the IRS Tax code, they know how the system works, and you might benefit from such knowledge.

Just like you would hire a professional contractor for your home improvements, or a professional doctor for your medical needs, you want should want to hire a professional tax advisor to take care of your tax duties.

Tax Consultants Are Updated with IRS Tax Code

The IRS Tax Code is about 2,600 pages long, without including additional explanations and resources. Every year, there are different Tax Law changes and reforms. Tax consultants must keep up to date in regards to those modifications. This is particularly important if you’ve been doing your taxes yourself. There might have been updates you were not aware of until now.

If you worry about making a mistake when filing your taxes, tax consultants will give you the peace of mind you needed.

You Might Be Able To Get A Higher Tax Return

Coming back to what we mentioned before, tax consultants know how the system works, and this can benefit you. Since most consultants also provide financial advice, they can guide you year-round so you can make smarter monetary decisions. This, in turn, can ensure that, when the time is due, you get a higher tax return.

Hiring a tax consultant can have great benefits in the long run. Whether you want it for your business or for your personal expenses, choosing the right consultant for you will definitely show results.

Most of us have been in the situation of almost forgetting to complete our Income Tax Return files, whether it is because of our hectic schedules, stress, work, family life, or whatnot. Maybe it only slipped our mind this one time, or there might even be someone out there who thought their income did not reach the amount required for a tax return to be necessary. 

Whether it was because of a lack of time, a distraction, or a misbelief, failing to file income tax return, or to pay the corresponding bill, if it happened to be the case, can have several consequences, from fines and penalties, to losing our refund, and even ending up doing some time in jail, and regardless if we face them or not, it all stays on our record for the Internal Revenue Service agency, and will eventually catch up with us. 

Penalties and Interests 

There are different penalties to which we can be subject, depending on our particular case. If we forgot to file our income tax report, or if we simply didn’t by the established deadline, we will be subject to a penalty of 5% of the unpaid taxes, this for each month that we fail to report, with a maximum penalty of 25%. The maximum amount we can pay as a penalty is of $135, however, after we’ve reached the limit penalty amount but still haven’t paid the owed taxes, such balance will start accruing interests, which cannot be waived by the IRS. 

In the event that we had filed our income tax return, and ended up owing a given balance, but failed to cover such payment, there are still penalties that apply, but they are lesser than when we fail to file. The failure-to-pay penalty consists of 0.5% of the unpaid taxes for every month we pay late, and this penalty also has a maximum of 25%, and just as the failure-to-file penalty, will start accruing interests after the maximum percentage has been reached.  

Missing Refund 

We must keep in mind that the penalties above apply for those of us who ended up owing taxes to the IRS, and not being eligible for a refund as a result of having over-paid taxes during a given tax year. However, there can still be consequences if we fail to file our income tax return and instead of earning a balance to pay, we qualified for a tax return refund. If this was the case, we would not be eligible to receive such refund, and we would have to cover any pending balance we might owe for previous years. 

Property Seize and Imprisonment 

Being subject to penalties and losing our refunds are not the only consequences of failing to file our income tax report. Depending on the amount that is owed, and if there happened to be an audit, you would eventually receive notifications to cover the debt. If we don’t take action and decide to ignore those notices, the IRS can (and will) seize of your property in order to collect the payment. Imprisonment for tax evasion is not really common, but it is possible, especially if we deliberately failed to report additional income, committing tax fraud in order to not pay taxes for those balances.