New W-4: Adjusting Your Tax Withholding Just Changed

New W-4: Adjusting Your Tax Withholding Just Changed

by | Dec 11, 2019 | income tax, tax form, Tax Refund, tax return, tax savings, taxes, W4 Form

New W-4: Adjusting Your Tax Withholding Just Changed

The IRS has recently introduced a new Form W-4. Due to this new Form, adjusting your withheld taxes from your paycheck would take a bit longer than usual. The only group that will not be affected by this form is taxpayers who are married and filing jointly.

Form W-4‘s format is long and essentially gets rids of a few allowances that the IRS earlier allowed for you and your family members. The form now asks for even more accurate information, which might even force you to take a look at the previous year’s tax return. It is in line with the Tax Laws that President Trump brought into effect in 2018.

As a taxpayer, it is essential that you get your withheld taxes correct. If you withhold a bit too much, you will impact liquidity or the salary that you take home. And if it is a bit too less, you will owe taxes to the IRS by the end of the year.

Who Needs The W-4?

The new form does not apply to workers unless there is a change in their tax status form the previous year. If your tax status remains the samefrom the last year, you don’t have to file the new W-4 Form. However, new employees and the ones who have had experienced a major life event such as getting married or giving birth to a child must file Form W-4.

The form is also applicable for taxpayers who aren’t too happy about their 2019 taxes. Whether you owe taxes of Uncle Sam or got smaller than expected refund, you must file W-4. Though it might seem a bit complicated, it actually simplifies the process that existed earlier.

 Benefits For Married Couples

Married couples are one of the demographics, that benefit the most from the newly introduced form. As long as both the individuals follow some instructions, the new Form is relatively easier for married couples.Married couples now merely must check a box in the returns. This box indicates that both of them are working and the amount of withheld taxes will be calculated based on that. This process is way simpler than the earlier one, where one had to follow a lengthy worksheet with nine steps to determine how much taxes should a couple withhold from their paychecks.

Though this process is simpler, there is a catch in Steps 3 and 4. Should a couple select the working box, the higher earning spouse must fill out Steps 3 and 4. These ask the taxpayers details about dependents, deductions, any additional withholdings and an additional source of income.The previous step is essential in more than a few ways. Since it plays a crucial role in deciding the taxes that are withheld. If both individually fill additional income Step 4, the amount of taxes withheld from the paychecks will be considerably higher. Similarly, a couple decides to fill in details for dependents or deductions individually, the taxes withheld will be lower. Though it might sound attractive at first, you might end up with a hefty tax bill at the end of the tax season.

Ensure No Surprises

Since it is a new Form, filing it up diligently will ensure that you don’t have to encounter any surprises. One of the easiest ways is to keep the details of the previous year handy. Details such as other sources of income, deductions that you had claimed and tax credits that you received for dependents.

Spending a few minutes to understand and fill the form will ensure that you are neither overdoing or underdoing your withheld taxes.

Buying A House In The US? Know The Tax Implications For The Same

Buying A House In The US? Know The Tax Implications For The Same

by | Dec 9, 2019 | income tax, Tax Break, tax deductions, tax filing, Tax Liabilities, Tax Planning, Tax Preparation, Tax Refund

Buying A House In The US? Know The Tax Implications For The Same

Buying your own house is one of the major milestones during a lifetime. Each buyer has a different reason to buy a house, but there is one aspect that everyone benefits from. It’s the taxes. On buying a house, you can get tax breaks which will help you reduce your tax liability.Being aware of the nitty-gritty and details will help you make the most out of these. Whether you already have bought a house or are planning to buy one, here are the tax implications that you must know.

Mortgage Payments Are Tax Deductible

Once you buy a house and start paying the mortgage, a portion of it goes towards paying the interests and a portion towards the principal amount. You might have to pay property taxes and insurance premiums to your mortgage provider as well. And when the time comes, they will pay it to the respective entity on your behalf.

As a general practice, you can take a deduction on the amount that you pay as an interest to your bank or lender for the mortgage. Also, you can deduct the amount paid as property tax to the lender in your tax returns as well.

However, a change in the rule now puts a cap on the amount that you can deduct as state or federal taxes, which includes property taxes from your returns. Post the amendment, you can deduct up to $10,000 only for property, income or sales tax.

Mortgage Insurance Premiums

Homebuyers who pay less than 20% as the down payment for their homes, may have to take the Private Mortgage Insurance. This cover is essentially recommended by the lender since they want to get coverage in the case of any default. You can utilize this insurance premium for a deduction, provided you itemize your deductions and the insurance was bought post 2006.

Taxpayers whose Adjusted Gross Income exceeds $100,000 would be subject to phasing out of deductions. As part of phase-out, a taxpayer must deduct 10% of the insurance premium paid for every $1,000 that exceeds $100,000. And the deduction is not applicable for taxpayers who have an AGI above $109,000.

Another important aspect to understand is that though standard deduction might be the easy way out, they do not offer a lot of benefits. Only when you itemize your deductions can you maximize your deductions. Here are the standard deductions just for your reference.

Filing Status Deduction
Single/Married filing separately $12,000
Head of a household $18,000
Qualifying widow(er) with a dependent child/Married filing jointly $24,000

Buying A House For Tax Benefits

Given the tax benefits of buying a home, few taxpayers choose to buy a house just for the tax benefits. If you are planning for such a purchase, it is essential to be cognizant of a few things first. For starters, irrespective of how much tax benefits you receive, it does not make a lot of sense to overbuy a house. By overbuy, we mean buying a house that is completely out of your budget, so as to get tax benefits.

Sticking to a budget is important since you should be able to pay off the installments comfortable without adding a lot of financial stress on yourself. Once you plan and buy a house within your budget, the deductions come as a bonus and should not be treated as a primary reason.

If you have decided to buy a house in the US, you must consider the above tax implications and take a decision accordingly. And most important look at the economic side of things as well before signing the documents.

Reference:

https://blog.taxact.com/homeownership-tax-breaks/

Are Robo-Advisors Legal?

Are Robo-Advisors Legal?

by | Dec 6, 2019 | Blog, income tax, Investment & Income, tax savings

Are Robo-Advisors Legal?

Millennials are slowly and steadily becoming a demographic that industries are taking more seriously now. As a result, there are several products aimed at Millennials. The advent of Robo-Advisors is one such product. In simple words, Robo-Advisors is a digitized solution that helps an individual build their investment portfolio. To create a portfolio based on your risk appetite and financial goals, it considers several parameters.

What are Robo-Advisors?

Robo-Advisors are digital platforms that offer investors with automated investment options which are algorithm-driven. This requires little to no human supervision. Normally you would have to answer a set of questions, which will help the Robo-Advisors asses your risk appetite, goals and tolerance levels. The Robo-Advisors then use this data to offer advice and even automatically invest in certain assets.

If you are in the search for the best Robo-Advisors, you can expect easy setting up of an account, services related to your account, robust planning, management of your portfolio, education on investment and lower fees.

Pros of Robo-Advisors

There are no boundaries or restrictions which can stop you from investing on your own. However, it comes with its own set of challenges. For instance, you will have to do any rebalances in the assets to make the most of the situation, look into maximizing your returns while minimizing the taxes that you pay. All this can be quite overwhelming if you are new to the investment scene.

Even if you have been investing for some time now, allocating time for such decisions can be a challenge. This is where Robo-Advisors come into the picture. The automated systems will take care of such decisions and actions. A lot of the Robo-Advisors offer online materials in the form of calculators, blogs or videos. Some Robo-Advisors are known to send regular emails to clients and offer assurance even when the market doesn’t seem very positive.

Cons of Robo-Advisors

As an investor, it is crucial that you are aware of the fees that you are paying to different platforms or brokerages. Every dollar that you lose in fees is a dollar that you could have invested. The Robo-Advisors do come at a price. And they are almost always higher than investing either through a brokerage or investing directly. Yet, the fees are less than a dedicated advisor.And you might face some issues building a relationship with your advisor.

Legality of Robo-Advisors

The legal status of Robo-Advisors is the same as human advisors. To conduct business, the Robo-Advisors must first register with the U.S SEC or Securities and Exchange Commission. Thus, they are liable to the same laws that apply to human advisors. Once registered, they get the designation of Registered Investment Advisor.

Since Robo-Advisors are still in their early days, it is natural for investors to be wary of their investments or even proceeding with the idea of hiring a Robo-Advisor. This is where the SIPC or Securities Investor Protection Corporation comes into the picture. The SIPC offers protection of up to $500,000 should your brokerage firm decide to file for bankruptcy.

Secondly, it is important to understand that you are merely investing in different assets via Robo-Advisors. Robo-Advisors would invest in ETFs, Index Funds or even stocks on your behalf. And if they were to go out of business, you can still take over and manage these assets. You can move them to a new brokerage or another Robo-Advisor.

As an investor, it is recommended that you carry out some level of research before availing the services of Robo-Advisors. You can always check for reviews or reach out to friends and family members who have used the services.

Reference:

https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp

https://blog.taxact.com/robo-advisors-are-they-legitimate/

 

 

5 reasons to opt for a professional to file your taxes

5 reasons to opt for a professional to file your taxes

by | Dec 2, 2019 | income tax credit, tax filing, Tax Planning, Tax Refund, tax savings, taxes

5 reasons to opt for a professional to file your taxes

Doing taxes on your own can be overwhelming, to say the least. You must consider the W-2, deductions, write-offs, maybe a collection of 1099s to take care of, etc. This can even more overwhelming considering the fact that you still have a job at hand and several other life decisions. Is there an easy way out? Well, you must file your taxes, there are no shortcuts in that. However, to make your life a bit easier, you can opt for a professional to file your taxes instead.

Here are some of the prominent reasons why you should opt for a professional to file your taxes.

  • Freelancing or side business

The Tax Cuts and Jobs Act introduced recently brings about a lot of changes to the tax regime. If you hold a regular job and have a side hustle along with it, getting professional help for your taxes might be your best bet. People who run businesses are more likely to be put into the 20 percent deduction bracket. Freelancers and people owning businesses might find it a bit difficult to do their taxes on their own.

  • Property Flip

On paper the only two documents that you would need to file for taxes if you have flipped a house are 1098 and 1099-S. However, it is not as straightforward as it might sound. Between the buying and selling of a house, there are a number of transactions that can take place. Opting for professional help in such cases is a smarter choice.

  • Life Changing Events

The occurrence of a life changing event can bring in a myriad of emotions to the table. Life changing events can include graduation, marriage, the birth of a child, divorce, moving on, losing a job or starting with a new one, etc. Such occurrences can complicate your taxes. For starters, it chances your status of filing along with many other things. You must look at different tax benefits, tax credits, etc. to minimize your tax liabilities and to maximize your returns. If you do not want to be bogged down by these complexities, you can take the help of professionals to do your taxes.

  • Student Loans

The equation changes a bit if either you or your spouse has a student loan to take care of. One of the biggest benefits of filing your taxes with the married filing jointly status is that you can expect the lowest tax liabilities. The taxes that you would have to pay individuals would easily overshadow the ones that you would pay with married filing jointly status. And the repayment schedule of student loans depends on the monthly income of the borrower. In certain cases, repaying your student loan on your own can be more beneficial than doing it together. Getting in touch with a professional will help you get over some of these conundrums.

  • Adopting a Child

As noble as the thought of adopting a child is, there are several tax benefits also associated with it. There are quite a few tax incentives for adoption along with tax credits. A sit down with your tax professional will help you make the most of the tax credits available. The downside being, there are higher chances of your taxes being audited. This makes it even more essential to work your taxes out with a professional, to ensure there are no gaps that the IRS can find.

The above are some common scenarios where the need for a tax professional is accentuated. If you have even the slightest of the doubts, do not hesitate to contact one.

All You Need to Know About Tax-Deductions on Charity

by | Nov 30, 2019 | Charitable Deduction, income tax, Standard Deduction, tax filing, Tax Liabilities, taxes

All You Need to Know About Tax-Deductions on Charity

A lot of taxpayers plan to do charity by the end of the year or during the festival season. If you have any such plans, it is only natural to wonder how the new tax laws will have an impact on your donations or Tax Deductions on charity.

While donating to charities, it is essential to be cognizant of the organization that you are donating to. Since there are a lot of scammers who do not miss an opportunity to collect charity in the wake of a natural disaster.

Making donations towards a qualified non-profit organization is the right way to go. Thequalified non-profit organization includes groups that are educational, charitable, religious, literary or scientific. Or any organization that works towards reducing cruelty towards children and animals. The IRS provides enough information on their website regarding all the organizations that are qualified. So that your contributions are directed to the right resources.

Though there have been new tax laws, it doesn’t bring a lot of changes for charity. They are still tax-deductible. The new laws have made some changes to itemized deductions but with minor changes, charity remains tax-deductible. You can still contribute money towards charity or items as long as you itemize them.

Updates for Charitable Deductions

The following are the two major changes for charitable deductions.

  • The earlier law allowed taxpayers to claim up to 80% of donations towards a seasonal ticket for college as tax deductions. However, under the new law, you cannot make any such claims. This is applicable from the year 2018 onwards, or the filing year 2019.
  • The limits when it comes to cash contributions to public charities have been hiked from the current level of 50% to 60%.

Itemized Deductions and Standard Deductions

The new tax laws have increased the standard deduction limits and it might impact the way you claim or do not claim your donations towards charity. Though there is no direct correlation between them, the IRS believes taxpayers are more likely to take the standard deduction.

For 2019, the IRS has hiked the standard deduction to $12,200 for single taxpayers and $24, 400 for jointly filing taxpayers. Taxpayers who are the head of the family can claim up to $18,350 as a standard deduction. The thing which hasn’t changed is your decision to take the standard deductions or itemize your deductions. Of course, you still must assess which option gives you a better tax option.

As mentioned, predictions show that a lot more taxpayers will now have their standard deductions a bit higher than itemized deductions. Thereby, leaving them with the option to go with the standard deduction and not itemized deductions. Consider this, you are liable to $8,000 as state and local taxes, $5,000 as mortgage interest and have made charitable contributions of $2,000. If you are filing as a single taxpayer, these itemized deductions sum up to $15,000 which is higher than the standard deduction of $12,200.

However, taxpayers filing jointly have a higher buffer of $24,400 and are more like to take the standard deduction instead of itemizing their deductions.Taxpayers who are close to the upgraded standard deduction limits can choose to contribute towards a charity of their choice during the festival season and claim it under Itemized deductions.

There are a couple of benefits of doing the same. For starters, you will be bringing a positive impact in someone’s life during the festive season and boost your tax refunds at the same time.

While both the options are still available, a taxpayer must do a quick assessment as to which method saves the most amount of taxes for them.