Tuesday, November 17, 2015

2015 Everyday Taxes Book is here!

Here's the most useful Tax Book you'll ever see.  It has chapters for dozens of life events, with explanations for all of them - written in ENGLISH!

This edition has added details for Military, with a State by State breakdown of how states treat their military residents.

Get the book by clicking HERE

Monday, October 26, 2015

I Want to Lower my Taxes!

This is one of the new chapters from the upcoming 2015 edition of Everyday Taxes, the book everybody should own, but nobody does.  Thought I'd post it here since it should be useful to a lot of people.  So, here it is:

Don't we all!  There are a lot of guru's out there claiming they can lower your taxes.  They range from frauds, kooks, and one trick ponies all the way to legitimate tax experts.  Avoid the scam artists like the plague.  You can always tell who they are because they over promise and make it sound easy.  The fact of the matter is that it's hard to lower your taxes without causing problems with your life.  As I said in my advice chapter, you should rarely be doing anything just to lower your taxes.  Sure, buying a house can lower your taxes, but you should buy a house when it makes sense for your life - not just to lower your taxes.  So I won't be talking about things that might lower your taxes, but that should be done based on other factors.

I'm going to cover two types of things here.  Things that directly lower your taxes and things that defer your taxes.  Deferring taxes is usually good, unless you'll pay taxes at a higher rate later.  Even then, deferring taxes is often the right plan, especially over a long timeline. 

I'm going to try to put things in the order of best to worst, based on my opinion, and the extent to which they are likely to apply to more people.  Some of them I will advise based on things other than just taxes, though I might not specify why - it's kind of like my personal preference.  There are probably more ways than these, but these are the ones that apply most often, or that don't require 7 CPA'S to make happen.

Last thing before the meat - some of these require you to itemize.  If you don't normally itemize, some of these things won't help you unless big numbers are involved.  I'll identify these with a "Requires Itemizing" closing sentence.

1.  The first thing you should do if you want to save on taxes is talk to a tax professional and have them review your last three years tax returns.  Many will do this for free and only charge you if they find some more money for you.  A good tax pro will not only use the review to find you money in the previous years, but also use what they learn about your tax situation to give you advice for the future.

2.  Funding tax deferred accounts such as 401k's and Individual Retirement Accounts is almost always a good idea.  Talk to BOTH a tax pro and a financial advisor to figure out what types of accounts are best for your situation.  If your employer matches contributions to your 401k, investing up to the match is a no brainer.  For accounts with your employer, you might not see the reduced taxes reflected in your paycheck, since the withholding will drop with the reduced taxable income.  Health Savings Accounts are another good option for deferring taxes on current income.

3.  Giving stuff to charity is a great way to save on taxes.  One of the things I like to tell people is that anything you pay that reduces your taxable income (mortgage interest, job expenses, etc.) is money out of your pocket.  The return on your deduction is whatever your state and federal tax rate is; so it's a net loser.  Cash contributions to charity work exactly like that.  Non cash donations however, are like the proverbial free lunch.  You give away crap you don't want to someplace that will do good with it, and you pay less in taxes.  I have a whole chapter on this: I'm Donating to Charity.  Requires Itemizing.

4.  Selling investments (in non tax deferred accounts) for a loss during the year.  You can do this both to offset taxable capital gains, or you can deduct up to $3,000 of net capital losses right off of your other income ($1,500 if MFS).  Do this only if it makes good investing sense.  Also, don't try to sell for a loss and buy it right back - that's called a wash sale.  You have to wait more than 30 days after selling in order to deduct the loss.

5.  There's a weird trick on Capital Gains, but you might need your tax pro's help with it.  If you have long term capital gains (generally on investments held at least a year) and are in the 15% or lower tax bracket (including the gains) you pay ZERO taxes on the gains.  You won't see a direct reduction on your current taxes, but you will NEVER pay taxes on those gains, even if you buy the investment back the next day (wash sale rules only apply to losses.)  This is the most under-utilized tax strategy out there.  I don't recommend doing this without the help of a tax pro, because there's a lot more to it than I can discuss here.

6.  Some deductions come with a threshold you have to be above before you can deduct them.  Job expenses and medical expenses are two of them.  If you don't normally get above the threshold, but have an unexpected expense in one year that puts you above it, this strategy can help.  Once you know you will be above the threshold, move any planned expenses for early in the next year into the current year.  For medical this might mean moving physicals or procedures up, or buying new glasses or contacts.  For job expenses you might move a business trip or big purchase up into the current year.  This also applies to itemizing itself.  If you are below the standard deduction, but close, donate to charity every few years, instead of every year.  This will allow you to get some use out of the donations.  Requires Itemizing.

7.  Keep better records.  You can't deduct something you forgot about.  I like notebooks that are handy.  In the car, on the desk, in your purse, in your shirt pocket.  Write things down right away!

8.  Don't miss mileage deductions.  Keep a mileage log in the car, and write down the mileage after every trip.  Mileage mostly applies to home businesses, people who deduct job expenses, medical trips and charity trips.  Requires Itemizing (except businesses).

9.  I almost didn't want to write this one down, because I wouldn't personally do it, but the math for taxes works out.  You can make purchases that wouldn't ordinarily be deductible, with home equity debt, that might make the interest deductible.  For example, you might buy a car with a home equity loan, making the interest deductible.  Two BIG things to consider first: First, there are limitations on home equity debt not used to buy or improve your home - so talk to a tax pro first.  Second, if you can't answer yes to this question: "Are you willing to lose your home if you can't make the payments on that other thing you bought?" then don't borrow money on your home to make the purchase.  This strategy puts your HOME on the line if you don't make the payments.

Tuesday, October 13, 2015

The Affordable Care Act (Obamacare) and People with Health Insurance

The title to this post should be - What should people who have health insurance be doing about the Affordable Care Act (Obamacare) right about now - but that was too long.

This is really simple, and should be easy, but if you don't plan ahead and figure this out, you could have a delay in your taxes.  You are going to need a 1095A, B or C to file your taxes.  You can't do them without it!  You need to figure out where this will be coming from, how you will get it, and when to expect it.

For most of you, this will come from the same place as your W-2 (For military it will be on MyPay).  For some of you, it could be coming from your employer, your insurance provider, or an ACA marketplace.  So start with your employer, or the marketplace and see what they say.  If they don't help, contact your insurance provider.  Once you figure it out SIGN UP FOR ELECTRONIC DELIVERY!!!  This way you'll get it faster, and don't have to worry about moving screwing things up.

Do yourself, and your tax guy, a favor and get this done.

Oh, and buy my book.  Seriously.  It is simply the BEST tax book that nobody's buying.  Check it out.  Tell your friends.  It's cheap.

Get the 2015 edition by clicking HERE

Saturday, June 27, 2015

Gay Marriage and Taxes

This post pretty much supersedes all my other posts on gay marriage, now that the Supreme Court has declared same sex marriage legal in all states.  This is a quick and dirty summation of how this affects taxes.  This pretty much applies to State taxes, since Gay Marriage is already recognized for Federal taxes.  Some States may interpret things differently than me, but I think most of what I discuss will stand up.  As always, seek professional assistance and do not rely solely on this blog.

1.  If you were married in a state that recognized gay marriage at the time you were married, the state you live in must now recognize this marriage and allow you to file Married Filing Jointly.
2.  In addition, the option to file Single and Head of Household is generally off the table for legally married same sex couples except in limited circumstances.
3.  Your marital status is determined as of 12/31 of the tax year, so if you are already legally married, it counts for 2015.
4.  You must now divorce or legally separate in order to dissolve your marriage for tax purposes.
5.  I would presume that you should be able to go back and amend tax returns for open years (generally 2012 and later) to file Married Filing Jointly and obtain refunds, assuming you were legally married on the last day of the tax year.
6.  I don't believe you are obligated to go back and amend those returns as discussed above.

5 and 6 are particularly subject to interpretation by the individual States.  If a lot of States interpret it differently, I'll consider a specific post covering each State.

As always, buy my book.  It is really the best tax reference out there for individuals:

Get the 2015 edition by clicking HERE

Monday, May 4, 2015

Tax Preparation Software Sucks - An Open Letter to H&R Block

1.  This paragraph has some disclosures, feel free to skip to the second paragraph if you want to know why this is directed to H&R Block, the third paragraph if you want to know why tax software sucks, and the fourth paragraph if you insist on using tax software and want to know how to do it right.  That said, I work for H&R Block during the tax season, and I love working for them.  They allow me to work 4 months out of the year, and they take care of my clients the rest of the year.  They have a lot of great people who do a great job with taxes.  I wouldn't hesitate to recommend them to anyone looking for great tax preparation (obviously you want to do some due diligence to make sure the specific preparer you get is qualified for your situation, as well as experienced.)  Also, to be clear, this article represents my personal opinion, and in no way represents the views of H&R Block and is a reflection of my experiences and may be completely skewed by them, so take it with a grain of salt (though I'm damn sure I'm right that tax software sucks).

2.  So why single out H&R Block?  Simply stated, many years ago H&R Block took the "if you can't beat 'em, join 'em" approach to tax preparation software, and produced their own.  I use most of the major software and online products every year as part of writing this blog, and H&R Block is among the best, but, as you'll see in paragraph 3 - they all suck.  The reason I single H&R Block out is because they are the only major player in the tax software business that MUST know that the software is woefully inadequate for the job of doing taxes.  Hell, their Second Look product and get your billions back marketing programs are pretty much targeted at tax software users (and crappy preparers).  H&R Block has the experience, research and knowledge to know that tax software isn't adequate to the task of getting people with limited tax knowledge to produce an accurate tax return.  It's time for them to stand up and admit this, and get out of the software business.  It hurts their credibility to claim that tax professionals are worth hundreds of dollars, but that tax software is effective.

3.  Why does tax software suck?  Simple: it has to be both user friendly, easy to use, and accurate.  If it's not user friendly and easy to use, no one's going to pay for it.  Hell, that's why it's so popular!  It is simply not possible to cover all the complexities of tax law and still be easy to use.  So they make it easy to use: "How much did you pay for uniforms?"  Sure, there's an info button you can click that will go into all the nitty gritty of this question, but if you read them every time they come up, it's not simple and easy anymore.  "How many miles did you drive for business last year?"  Again, many popups will be available to help you navigate the dizzying rules that are involved in this simple question, but you're not likely to read them, and, if you do, they're only going to make you more confused.  Don't even get me started on depreciation, business use of home, or investing income!  And that's just the Federal return!  Many states have nearly incomprehensible tax laws, and dozens of deductions and credits that you pretty much need to know exist in order to take advantage of them.  Most software just drags things from the Federal to the State, with barely a peep about what deductions you might miss.  I cannot even begin to describe the messes I've seen from tax software.  Just this year, a client with one W-2, no wife, no kids, no house, and an amazingly simple Federal 1040EZ missed out on over $10,000 in state tax money over the last dozen years because either the software didn't ask, or he neglected to answer enough questions to establish that his military income was exempt from California taxes.  Most of that money is gone forever.  Tax preparation software SUCKS!  You will have a better chance at an accurate return using pen and paper with the Federal and State instructions than you will using software!

4.  So you still want to use software?  Follow the steps below to make sure you have a better chance of not losing money...

Step 1: Download the Federal and State instruction books from the IRS and State websites and read them before you even start.  Get them early and read them in your spare time.  Don't worry, they're fairly short, and you can skip sections that obviously don't apply to you.
Step 2: Get a good tax reference book every couple of years and read the chapters applicable to you.  The best value for your money is my book (of course I think my book's the best - I did title my blog The Super Tax Genius  - I have no shortage of ego.)  Seriously though, it's cheap, it's written in English, it's short, and the chapters are sorted by life events, not the IRS code, so you don't have to read too much.  Here's a link: Everyday Taxes.
Step 3: Read all the popups and gobbledygook while using the software, and keep your tax reference handy.
Step 4: Pay for and print the return BEFORE e-filing.  That way you can check it line by line using the instructions, or...
Step 5: Have a professional check it before filing.  Many tax pros will look it over for free, hoping to find an error and charge you to get more money.  H&R Block will do the entire return from scratch, for FREE and compare the results to yours, hoping to find an error and give you the option to pay to have it fixed (and find out you should have used a pro all along.)  H&R Block calls this the Second Look.  Even paying a nominal fee for the checkup is worth it.
Step 6: If you aren't going to do Step 5, save your tax returns and all supporting documents, and have a pro check them at least once every 4 years.  This way, if there's a mistake, it's not too late to fix it and get you your money.
Step 7: For God's sake print a fricken' copy of your return!  If you don't, it won't be there when you need it (and you will need it, eventually)

Thursday, March 26, 2015

Last Chance for 2012 Refunds

Now is the time to file your 2012 tax return, or, if you already filed, to have it checked.

After 4/15/2016, the IRS won't give you any money for 2012.  So get to an expert and have them look over that return and find you some more money!

Monday, February 9, 2015

The IRS did NOT Call You!

Unless you are currently involved in communications with the IRS that were initiated by you in person or by the IRS via a letter, that person calling claiming to be the "IRS" is full of you know what.

The IRS does NOT initiate communications via phone calls.  Scammers trying to steal your money or identity do.  I have already had six people (including a tax pro I work with) receive these kind of calls.

If you want a little more reassurance, try googling the number the call came from (if the number is hidden it's DEFINETELY a scam).  Chances are the google results will be full of people asking about the number, and MANY people identifying it as a scam.

If you want more reassurance, call the IRS (though this is pretty much a waste of time.)

I'm expecting the scammers to get more sophisticated and start sending letters, but that's for another post.

And BTW, that email from the IRS about a problem with your refund - that's a scam too.

UPDATE: Seven calls - including my sister!  Now they are saying there are serious criminal charges.  Still a total scam.

LAST UPDATE on call numbers: We are up to over three dozen people contacted in this way.  We have also seen a couple of fake IRS letters.  If you receive a letter from the IRS you should be careful to ensure that it is from the IRS.  Most letters should be easy to verify based on information from your return being included on them, but if you have doubts, call the IRS at 1 (800) 829-1040 to verify.  Don't use the number on the letter if you think it's a scam!  You could also have a tax professional check it out.  Also don't click on email links purporting to be from the IRS - these are also scams.