Archive for the 'Taxes' Category
I keep having to look these up, so here are the tax brackets for 2006.
| Marginal Tax Rate |
[Taxable Income] Single |
Married Filing Jointly |
| 10% |
$0-$7,550 |
$0-$15,100 |
| 15% |
$7,551-$30,650 |
$15,101-$61,300 |
| 25% |
$30,651-$74,200 |
$61,301-$123,700 |
| 28% |
$74,201-$154,800 |
$123,701-$188,450 |
| 33% |
$154,801-$336,550 |
$188,451-$336,550 |
| 35% |
> $336,550 |
> $336,550 |
For comparison, here are the 2005 tax brackets. Taken from IRS.gov. For state income taxes, this site is the best resource that I could find.
Posted in Taxes | 9 Comments »
29 states and the District of Columbia offer a tax deduction or credit for residents who contribute to their state’s 529 plan. Here is a list of them all. If you’re working your way through school, you should definitely try to take advantage of these benefits for yourself.
How? It’s easy.
- Open a 529 and make yourself the beneficiary.
- Then, contribute to the plan and get the tax break, using the most conservative option (since you’ll be spending the money soon).
- Finally, take the money back out of the 529 plan to pay for your college expenses.
You must make sure that it’s okay for the contributor and beneficiary to be the same person. Also, you can’t pay for things with a 529 distribution that you want to use for the Lifetime Learning Credit. But this shouldn’t be a problem, as 529 plans are allowed to cover room and board, not just tuition. All you have to do is look up your school’s estimated tuition chart and see what their estimated room and board costs are.
For example, let’s take Oregon. You can deduct $2,000 a year in contributions. At Oregon’s 9% marginal rate, that’s $180 in savings each year. The estimated room and board for Oregon State University is $7,344, easily over $2,000.
Posted in Taxes | 16 Comments »
It’s open enrollment season again, which means it’s time to decide on your benefits and spending account contributions. PayCheckCity has a variety of tools for simulating what your take-home pay would be if you added disability insurance, increased your FSA amount, and so on.
It can also be a good time to check your paystubs and see if you want to make any other changes. Maybe you want to increase your cashflow, or see if you can afford to put more away in your 401k. You can also check if you’ve already paid as much taxes so far this year as you did last year. If so, you could underwithold taxes on purpose and stick the difference in an interest-bearing account to make a few extra bucks. You can then wait until April 15th to pay up what you owe without penalty. Uncle Sam makes millions every year on people who overwithold their taxes - why not flip the tables? Hint: If you want to stop withholding as much, you can put up to 10 allowances on your W-4 without IRS notification. You can put as many allowances as you want, but I wouldn’t go totally nuts.
Thanks to Mapgirl’s Fiscal Challenge for the PayCheckCity link.
Posted in Taxes, Tools & Calculators | 10 Comments »
Now that I’ve mentioned tax avoidance, one potential advantage of incorporating your business into an S-Corporation is the ability to reduce the Social Security and Medicare taxes that you pay. I’m going to stick to using examples of one-person businesses.
Simple Example
Here is a simple example. Let’s say you have two self-employed people, Sam and Carrie, who are both freelance photographers. Their businesses make the same net profits of $60,000 last year ($5,000/month). The only difference is that Sam is a Sole Proprietorship and Carrie is an S-Corporation.
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Posted in Entrepreneurial, Taxes | 38 Comments »
I was browsing the library a few months ago, looking for some accounting books, when I came across a book entitled Keep Your Hard-Earned Money: Tax-Saving Solutions For The Self-Employed. It was clearly a bit dated, as it boasted about ‘including the 1997 tax law changes’.
Now, if you are looking for a book about aggressive tax-reducing tactics that skirts right on the edge of the legal vs. illegal (and hints past it), then this is your book. How it saves you money is by helping you “convert everyday living expenses into business deductions”. The motto of this book is “When In Doubt, Deduct”. We’re talking vacations, last night’s dinner, everything. I definitely wouldn’t feel comfortable doing some of the stuff in this book. However, I did learn a couple of new legitimate business deductions.
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Posted in Taxes | 7 Comments »
Hmm… the media seems to be addressing all my questions today. This Wall Street Journal column addresses the taxation of credit card rebates:
The IRS hasn’t issued any specific public guidance on whether cash-back card rebates are subject to income tax, says an agency spokesman. But the IRS did issue a private-letter ruling in 2002 that said certain card rebates aren’t included in a taxpayer’s gross income. Although a private-letter ruling applies only to the taxpayer that applied for it, such rulings are considered to be a gauge of the agency’s thinking on a particular issue. Tax advisers say rebates are generally considered to be a reduction in purchase price, and not likely to be taxed. Rebates on purchases made for business or investment may have more complex treatment, so consult a tax adviser.
In short, the IRS hasn’t said anything specific either way, but has ruled in specific cases that they are not taxable. Although certainly not concrete, this is still reassuring as I personally have never reported any of my cashback as income.
I would estimate I pull in well over $1,000 a year in free money from credit cards, with my 2 to 5% back on all my purchases as well as signing up for $100 to $250 in upfront incentives. The great thing is that anyone with decent credit can get in on these offers. Article via Boston Gal’s Open Wallet.
Posted in Credit Cards, Taxes | 13 Comments »
Since the taxes are done and the IRS has already cashed my check (funny how quick they are at that!), it’s time to throw away some of the paperwork that I’ve accumulated through the year. I usually keep all my pay stubs, bills, and other papers in their own folders in a creaky filing cabinet. By this time of year, I can barely open the drawer anymore. But how long should you really keep your papers?
I got this list from a Fidelity newsletter I received a few years ago. Not sure how accurate it all is, but it seems like a good general guideline:
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Posted in Taxes | 18 Comments »
For those cutting it close to April 17th, it may be time to consider filing a tax extension. But while it’s pretty easy to get an extension until October 15th to file your taxes, you still have to pay any tax you owe by the 17th. Still, the penalty for failing to file (5% per month + interest) is a lot worse than the penalty for paying late (0.5% per month + interest). So even if you know you’re going to pay late, file an extension!
So how do you get one and how much will it cost? According to IRS Form 4868, there are three ways to do it:
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Posted in Taxes | 1 Comment »
Since I have self-employment income and thus no automatic withholding, I need to make it up with extra payments to the IRS. Although I could just do this by adjusting my wife’s withholding like last year, I decided to start keeping it separate and just pay quarterly estimated taxes. TurboTax was nice enough to help figure out how much I needed to send in for 2006, but you can also use the worksheet on Form 1040-ES.
You can pay by check, but I found it easier just to do it via electronic bank transfer at EFTPS.gov (Electronic Federal Tax Payment System). It took a couple weeks to get my login information by mail after signing up online, but scheduling my e-payment was easy enough.
Posted in Taxes | 11 Comments »
What a wonderful way to spend a Saturday! Ugh. At least now I’ve figured out that I can contribute $2,500 to my 2005 SEP-IRA. I plan to open one up at Vanguard by the April 17th deadline and then merge it with the rest of my Traditional IRA funds. Am I supposed to mail my returns via Certified Mail? I’m not - If they cash my check then that should be proof enough.
Here is a useful SEP-IRA contribution calculator (Thanks Wes). If you had Google Adsense revenue in 2005, don’t forget that it’s taxable income! Check out Adsense Taxes for more information and tax-minimizing ideas.
Posted in Taxes | 1 Comment »
Q: How do you know when you’ve been at this too long?
A: When you you are halfway done on a post about how to underwitholding taxes without paying a penalty, only to find out you’ve already done it! Check out my post on April 23rd of last year - Maximizing My Tax… Bill? Underwithholding On Purpose. Let’s see if I can add to what I wrote already without too much overlap…
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Posted in Taxes | 8 Comments »
April is almost here, and I haven’t finished doing my taxes yet. Tsk, tsk. I’m actually about 90% done with my return, but I am still trying to track down every single receipt possible in order to reduce my tax liability. They are legit business expenses, but I really need to work on my bookkeeping skills. After reading up on the rules I am not messing with the home office deduction for 2005.
I would just file a tax extension to October 16th, but I underwitheld on purpose this year and will be owing taxes (without penalty). That means I have to pay what I owe by April 17th even with an extension. If you followed some of the deals from my blog this past year, here are some things you may want to note:
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Posted in Taxes | 15 Comments »
I think I’m done waiting for all my W-2s and 1099s to come in (a lot of 1099s!), so here are my fun tasks for today:
1) Make sure I’m not missing anything, as everything should’ve been sent out by January 31st. One sure way to ask for an audit is to forget to include all your income. Many tax forms are also online now.
2) Verify the amounts are correct. Hey, brokerages make mistakes. Make sure you note what interest was supposed to be non-taxable for certain areas, like any municipal bonds or Treasury Bills.
3) Update my emergency list of accounts and contacts, using this thorough and handy Financial Preparation Kit.
Posted in Taxes | 2 Comments »
Here are more free and cheap tax filing options, in addition to my previous list of free tax-filing options (check those out first!). Note the following are online and Mac-friendly. Links courtesy of Fatwallet.
H&R Block TaxCut Premium Online #1 - Free Federal Return if you print it out, $19.95 to e-file. State Return is $24.95. Thus, best for people with AGI’s > $50k with no state income tax.
H&R Block TaxCut Premium Online #2 - Federal + State Return for $19.95. Free Federal e-file. Best for people with AGI’s > $50k with state income tax. The Premium version offers extra features like extra help for small-businesses and a free tax consultation. I’m most likely going to use this one, to get some help with my Schedule C.
Posted in Taxes | 3 Comments »
I was doing some business tax research today and ran across this interesting tip for avoiding an audit - don’t E-file. Here’s why. The way the IRS determines if you are to be audited is through a computer algorithm that churns through your numbers for certain red flags, like too many deductions or a difference between what you typed in and what they have on their W-2s and 1099s. Now, 100% of all E-filers are analyzed since it’s all ready to go. But for physical mailed-in returns, the IRS has to hire tons of data-entry people to manually type in each one. This is expensive, so reportedly less than half are actually transcribed. No computer = no audit.
Now, I don’t know if this is true, but it makes a certain amount of sense to me. Of course, this may delay your tax refund. But I’d trade that for a smaller chance at an audit anytime.
Posted in Taxes | 18 Comments »
