If you regularly read articles about investing and have a strong understanding of how the stock market works, then you likely feel that you can make sophisticated, proper choices when it comes to your portfolio. However, what you may not know is that you need more than just “number” knowledge to make these types of decisions.
Personal Finance Round-Up: Understand Your Financial Decision-Making Process
Money Crashers
IRS Tax Form 1099-DIV – How Are Dividends Taxed?
Kira Botkin
Many investors choose to invest in dividend-bearing stocks, or mutual funds focusing on dividend payers, as part of their portfolio. And those dividends can pay off in a major way.
Investing in dividend-bearing stocks can be a great choice for investors who are thinking long-term. You may receive dividends in stock or cash, and you can frequently reinvest cash dividends to buy more stock. Depending upon how you receive dividends, you may need to plan ahead for tax day. Specifically, it is important to understand the different types of dividends, what you can expect as far as paying taxes on them, and how to read the 1099-DIV tax form so you’re adequately prepared.
Do I Have to File Taxes and How Much Do I Need to Make?
Kira Botkin
Filing taxes is nobody’s idea of a good time. The process can be lengthy, confusing, financially straining, and even downright intimidating. However, while many people have tons of questions about tax filing, there’s one that’s not often asked: Do I even need to file a tax return? You may be one of the lucky few who can avoid the process entirely.
There are three factors that determine your filing requirement: age, income level, and filing status. Generally, if you earned less than a specified amount according to those three factors, you won’t have to file.
Box 12 Codes on Tax Form W-2 Explained
Kira Botkin
Below is the explanation of the Box 12 Codes on the W-2 tax form.
A - Any uncollected Social Security tax or RRTA tax on tips. You’ll include this amount in your total tax liability on your Form 1040.
B - Any uncollected Medicare tax on tips. You’ll include this amount in your total tax liability on Form 1040.
C - If you had group term life insurance through your workplace, the premiums for any value over $50,000 become taxable income to you and are included here.
D - Contributions to a 401k or SIMPLE 401k retirement plan.
E - Contributions to a 403b retirement plan.
Standard Deduction vs. Itemized Tax Deduction
Kira Botkin
One of the biggest breaks the IRS provides is in the form of deductions, which allow you to reduce your taxable income and thereby pay less in taxes. You may be accustomed to taking the standard deduction, which is a preset amount. Or, you may choose to itemize deductions on Schedule A. The choice is up to you.
For most taxpayers, the amount of the standard deduction and the itemized deduction are different. Typically, your tax preparation software or accountant determines which will give you the lowest tax bill. However, understanding the difference yourself, particularly what types of expenses you can deduct on Schedule A, can help you maximize those deductions and make better choices throughout the year to reduce your taxes.
Deducting Health Insurance Premiums & Healthcare Expenses on Your Taxes
Kira Botkin
The cost of healthcare has been growing much faster than inflation, and will likely continue that trajectory considering the changes implemented by the Patient Protection and Affordable Care Act. This unfortunate trend may leave you wondering if you have any recourse to save money and reduce the impact of costly healthcare at all.
Plus, if you are not currently covered by health insurance, you may be required to purchase it with the implementation of the individual health insurance mandate in 2014. Though some income groups will receive assistance to afford coverage, many won’t and will face a fine for not purchasing adequate coverage.
4 Education-Related Tax Deductions and Credits For College Tuition & Expenses
Kira Botkin
Unless you were born with a silver spoon in your mouth or the ability to perform a jump shot on par with LeBron James, your or your children’s college education is going to cost you. Public colleges cost an average of $22,261 per year, and private universities boast a massive average tuition price of $43,289. And according to the U.S. Department of Education, college seniors now graduate with an average of $28,186 in student loan debt.
Despite the fact that you cannot fully escape high tuition costs, there are ways to alleviate some of the financial burden. The Federal Government currently offers four tax credits and deductions that can save you bundles of cash at tax time.
State Tax Rates Comparison – Sales, Income & Social Security Tax
Kira Botkin
The Federal Government taxes everyone’s income according to the same scale, but each state has the ability to set different types of taxes on its citizens, including property tax, sales tax, and income tax. This means the amount of tax you’d pay if you live in Florida may be vastly different than the amount you’d pay if you live in California.
For some states, property and sales taxes are the main sources of revenue. In fact, several states don’t collect income tax at all. Depending on your long-term financial goals, you might want to consider living in such a state – or, at the very least, do your Christmas shopping in a state with no sales tax.
How to Calculate Federal Income Tax – Rates Table & Tax Brackets
Kira Botkin
The United States income tax laws are based on a progressive tax system. Basically, this setup means that you pay a percentage of your income, owing more taxes when you make more money, and contributing fewer tax dollars when you make less money.
Theoretically, a progressive system distributes the tax burden more heavily onto those who make more money and thus have more ability to pay, and away from those who can’t afford as much.
Over time, tax deductions, credits, exemptions, and loopholes have modified and complicated our system. But at heart the American income tax system uses a relatively simple series of stepped tax rates to determine how much you owe.
What Is the Earned Income Tax Credit (EITC) – Requirements & Eligibility
Kira Botkin
Taxes are a burden for everyone, but especially for low-income individuals and families who need all the money they can get.
Interestingly, low-income earners pay a much larger percentage of their salary to Social Security than high earners do, which makes their tax bite effectively larger. In an effort to help offset this effect and to encourage people to work, Congress created the earned income tax credit (EITC) in 1975.
The program is still going strong today and provides tax relief and extra income to low and moderate earners, especially to those with children.
Important Tax Tips for Gay & Lesbian Partners and Unmarried Couples
Kira Botkin
Gay marriage, though legal in a number of states, is not recognized by the Federal Government. This means, among a whole host of other issues, that same-sex couples do not enjoy the same tax breaks as married heterosexual partners in the United States.
As frustrating as that may be, the good news is there are still ways you can lower your tax bill come the tax filing deadline. And this advice isn’t great just for same-sex partners – any unmarried, financially interdependent couple can benefit from the following tips.
4 Reasons the IRS Can Seize Your Income Tax Refund Money for Debt
Kira Botkin
If you’ve recently filed your taxes and were expecting a nice fat refund check, you may be shocked if you check the tax refund status and discover that it’s no longer coming.
Believe it or not, there are several situations in which the IRS can rightfully seize your refund. Therefore, before crying foul and blaming the government for making a terrible mistake, consider whether any of the numerous reasons for tax refund seizure could apply to you.
7 Reasons to Have Multiple Bank Savings Accounts – Pros & Cons
Michele Lerner
The best way to ensure that you build wealth and avoid debt is to diligently plan and save as much money as possible for both future needs and desires. However, exactly how you handle your savings can depend greatly upon your financial habits. Some financial experts recommend setting up a simple savings account tied to your checking account, while others advocate opening multiple accounts to be used for various savings targets.
There are pros and cons to each approach. Of course, a major part of your final decision depends on your financial personality.
What Is Mechanical Breakdown Auto Repair Insurance – Is It Worthwhile?
Michele Lerner
These days, drivers keep their cars longer than ever, as the average age of the 240.5 million cars and light trucks in the U.S. is almost 11 years. And since that’s an average, you can assume there are plenty of cars older than that riding down American highways.
A car that lasts for years is great, but the older it gets, the more likely it is to face mechanical trouble. The Toyota Tercel I drove for more than a decade regularly racked up repair bills of up to $900 until I finally realized I could save more money by simply buying a new car. Financially savvy owners with deep savings accounts and emergency funds are prepared for unexpected problems, but those of us who haven’t thought ahead can quickly wind up stuck with significant bills.
C.L.U.E. Report – Why Home Buyers & Sellers Should Get One
Michele Lerner
Many home buyers fall in love with their house, sometimes at first sight. However, it is important to be careful when you open up your heart – otherwise, you may get trapped in a money pit. Your first step to avoid falling into that trap is to complete a thorough home inspection with a reputable, licensed inspector. Once this is done, take your investigation a step further by requesting a comprehensive loss underwriting exchange (C.L.U.E.) report from the sellers.
