So now that the Happy New Year smoke has cleared and New Year’s resolutions are settled in, the next big thing that is on everyone’s mind is the love of our life… No, not Valentine’s Day, but those dreaded taxes that we have to file each and every year. For some reason taxes have gotten a bad rap, but truth be told if you knew the secrets, you would fall in love with doing your taxes more than Donald Trump loves hair pieces (they’re not really secrets but it sounded cool to say). Face it, you work hard and meet your obligations all year round, so why shouldn’t you be rewarded for doing what you’re supposed to?
You absolutely should be rewarded! And to help you reap those rewards, check out the following five tips for filing taxes that will help you start to fall in love with the process.
Lovely Tips for Filing Taxes
1) You can use your withholdings to get back more of your paycheck.
If you’re employed full-time, the first thing you should do is check your withholding and increase it, if necessary. When you were hired, you completed an IRS tax form called a W-4 which determines your tax withholding.
Your tax withholding determines how much money is going to be withheld from your paycheck each pay period. Many people do not understand its implications and are likely to choose 0 or 1 which is a number that represents your exemptions.
Option 1. When I first started working, I remember that people would advise me to claim zero so I could get more money back at the end of the year. However, when you claim the least amount of exemptions, more money is withheld from your paycheck for tax purposes. In essence, you’re giving the government an interest free loan on your money that could be used
for your own personal savings.
Option 2. In the reverse, when you claim more exemptions, less money is withheld in taxes. If you take this route, increase your exemptions enough so that you are paying the IRS exactly or close to what you would owe in income tax. The extra money that you will receive in your paycheck should be used for saving in a high-yield savings account, investing, and making your money work for you. This is the better option and what I would recommend.
Be careful that you are not increasing your exemptions just for the sake of increasing them, because if the exemptions are not justified you can wind up owing money, and we definitely don’t want that! Check with your tax accountant before you decide to adjust your withholdings.
2) You can possibly get tax credits and deductions for higher education.
For many Americans, especially millennials, student loans are one of the most concerning things keeping them up late at night. But, most don’t realize that they may be eligible for many deductions that will give them a bigger return come income tax time.
For example, the student loan interest deduction allows you to deduct the amount you paid in student loan interest, up to $2,500 per year. Some other deductions include: the American Opportunity Credit and the Lifetime Learning Credit. Visit IRS.gov for a complete list of deductions.
3) Staying healthy can come with financial kickbacks.
With the rising cost of health insurance these days, it may be tempting to forgo health insurance and take your chances however, not only would that be a big health mistake, but it would also be a big financial mistake due to the penalty charged to those who are uninsured.
One thing that may make you fall in love with taxes is the fact that you can contribute to a Health Savings Account (HSA). In order to pay for those high deductible health insurance plans pre-tax, contributing to an HSA can save you thousands of dollars when you file your taxes. For the 2015 tax filing year, the minimum annual deductible is $1,300 for individual coverage and $2,600 for families and the maximum annual deductible and other out-of-pocket expenses is $6,550 and $13,100 for families.
4) Doing good can be financially rewarding.
There are two universal laws that I live by: 1. “the more you give the more you get” and 2. “to whom much is given, much is required.”
Not only is giving back a noble thing, but it can also help give you substantial
tax savings. If you made donations to a charity, you may be able to use them as deductions on your taxes. To qualify, your donations have to be made to a nonprofit organization that can prove they have 501(c)(3) tax status. Legitimate charities usually have their status clearly stated on their websites, or you can verify it directly from the IRS by visiting http://www.IRS.gov/charities, then click on the tab that says Contributors.
The second criterion is that you must have a receipt from your donations. Not all of your donations count, and there are limits on what can be deducted, so make sure you check with a tax accountant to verify your eligibility. Some common deductions include real estate, furniture, clothing, cars, electronic equipment, office supplies, mileage, cash donations, and tithes paid.
5) Your side hustle can pay your dividends.
We now live in a time where starting a business is not only easier than ever, but it can be done with low overhead, which results in showing a profit earlier on. With many people now taking the leap of faith to become their own bosses, it would behoove you to take advantage of the many associated benefits.
Starting a home-based business can cause two things related to your taxes to happen. First, with your initial investment into the business, it can increase your tax refund. And secondly, you can deduct things like your home office, telephone, Internet service and office supplies. The deductions aren’t anything to sneeze at either. On average, a home-business can bring in around $3,000 to $9,000 in tax savings. The great thing is that it doesn’t matter whether you run your business full-time or part-time—you can still benefit from running a home-business.
Starting to fall in love with the idea of filing your taxes as much as you already love mobile banking? 😉 Just remember that in all things, love is a process!
Disclaimer: All material is for informational purposes only, and is not intended to provide tax, legal or financial advice. Paradigm Money does not provide tax, legal or financial advice, so you should consult your own tax, legal and financial advisors before making a decision or taking any action.
5 Hidden Risks in Retirement That Could Affect Your Financial Security
Being well-prepared for retirement is wonderful, but there is no fail-safe plan. Things can unravel due to many inherent post-retirement risks. Understanding those risks that lie ahead and how they can harm financial security is key to making critical adjustments in a retirement plan. Sometimes without those changes, the impact of unfavorable and unpredictable events can be far more severe.
“Once you have a retirement plan in place, it’s not set in stone,” says Clayton Alexander (www.retireteton.com), an investment adviser and founder of Teton Wealth Group. “
Alexander says retirees and those making retirement plans should be aware of these five risks:
Running outof money before they die is one of the primary concerns of most retirees. This worry is heightened by the fact that the average life expectancy has increased. “A pension or an annuity can lessen the risk, but carefully investigate anycompany where you’d place an annuity and be cautious of fees and interestrates,” Alexander says. “It’s best to tailor your plan to run to life expectancy plus five years.”
- Loss of income. “Make sure both you and your spouse are protected from the unexpected,” Alexander says. “Consider the financial impact of the loss of one spouse. Remember that your surviving spouse will only get the highest of your two Social Security checks. A spouse’s death can bring additional financial burdens, including lingering medical bills and debts. Life insurance and estate planning are important vehicles to protect survivors.”
- Health care costs. Longer life expectancy could lead to high costs in a long-term care facility. “It’s estimated that approximately 50% of people over 65 will need long-term care,” Alexander says. “Do not overspend on policies that may be subject to drastic premium increases. And surprising to some, Medicare is not free — your premiums for coverage are usually deducted from your Social Security check. Medicare doesn’t cover dental, hearing or vision, is subject to deductibles, and doesn’t cover long-term care. Long-term care insurance is advisable.”
- Negative return risk. “A 50% gain does not allow a portfolio to recover from a 50% loss,” Alexander says. “In fact, a 100% gain is required to restore a 50% loss. The ‘buy and hold’ strategy that works when you are young — where
you waitfor the markets to come back up after a downturn — does not apply inretirement as we saw in 2008,when many people’s retirements were wipedout. Common stocks have substantially out-performed other investments over time and thus are usually recommended for retirees as part of a balanced asset allocation strategy, but the rate of return you earn can be significantly lower than the long-term trends.”
- Inflation risk. “
You shouldplan on prices for food, goods andservices getting higher duringretirement, reducing your buying power incrementally as you are livingon a fixed income,” Alexander says. “Your retirement plan has to factorthat in. Ways retirees can curb the effects of inflation include annuity products with a cost-of-living adjustment feature and investing in equities, a home, and other assets.”
“Understanding what the potential post-retirement risks are and considering them in the retirement planning stage,” Alexander says, “can help to ensure that they are mitigated and properly managed.”
Are Americans Undervaluing Paid Time off + Quick Trip Tips
It’s August, which for many Europeans means taking almost the entire month off. So why is it difficult for Americans to take even the little vacation time they receive? A recent piece in The Economist states workers in the U.S. are doing it all wrong by going on short holidays, which can add even more stress or taking none. Instead, it’s essential for employees to recharge their batteries. It’s also beneficial for companies to have a consistent holiday month during which junior employees can head to the beach, and managers can take stock of things, says the report.
While many Americans may not receive paid time off, especially those that only work part-time, even those who receive it generally don’t take all of it. What we don’t realize is that not taking a vacation is like giving money back to your employer, especially with companies that have a use it or lose it policy. Which should encourage employees to use their time but unfortunately it does not. According to recent polls conducted by Bankrate, nearly 2600 US adults say they plan to take a quarter of their vacation days while 4% are not planning to take any vacation time at all.
Time off is a valuable perk, to the tune of millions of dollars! Just to bring the point home in 2017 Americans gave up 212 million days off that amounts to $62.2 billion in lost benefits! So, take your vacations and follow the tips below to not break the bank while taking time off:
- Take a Staycation – Stay local and vacation somewhere that is less than a day drive away, this helps save gas, mileage, and spending on lodging. Look for local attractions, vineyards, interesting museums and landmarks or even travel to your closest big city and be a tourist for a day. You would be amazed at how much you can discover and learn by staying local and all on the cheap! It’s a bonus if you have friends in the town your visiting they can serve as a tour guide and let you stay over for free if they have the room.
- Book Flights Off-Season – July 4th, Memorial Day and Labor Day seem like a great time to go on vacation; unfortunately, everyone is planning to take time off during those busy weekends, and ticket prices are through the roof because of it. Book flights after major holidays and during the week you will generally find that they are cheaper than weekend flights.
- Take a Road Trip – Road trips are fun and cheaper than taking a plane, especially if you must rent a car when you get to your destination anyway. Plan cool stops along the way and finds interesting places to eat that way you can make the journey part of the vacation.
- Plan to Eat In – Food adds up on vacation so pack food and making one or two meals in your hotel can keep you under budget.
Top Ten Freshman Money Myths
Starting college is one of the most important and exciting times of your life. Now that you’re all “checked-in,” enjoy your college experience without worrying about where your next meal will come from by chasing away these common freshman money myths. (more…)