Tax Advantages of Being Single

 With three filing statuses that pertain to being single, choosing the right one can help taxpayers make the most of their financial situation.

Single filers can have an advantage over their married counterparts, because dual income married couples often pay more tax due to the marriage penalty.

A couple suffers a marriage penalty if its partners pay more income tax as a married couple than they would as two single individuals. Conversely, the couple receives a marriage bonus if its partners pay less income tax as a married couple than they would have as two single individuals.

Tax issues for single women are not unique by gender. There are differences in filing single versus filing married and even further married filing separate, but many considerations regarding filing status are not gender based.

More than 11 million households are single families, according to the U.S. Census Bureau.

Single women, single men and taxpayers in general need to watch for tax law changes but even more importantly life changes. Life changes may include marriage or divorce but more commonly relocation, moving and taking care of a new dependent.

Having children changes everything in more ways than one.

If you are single due to a spouse passing, widows who have dependent children are entitled to a special filing status for two subsequent years.

A single parent can usually claim head of household filing status if he or she is the only adult in the home; provides more than half the cost of rent, utilities and food; and has dependent children.

You can claim this too if you are supporting an elderly parent even if they don't live with you.

Filing under head of household status tends to provide a higher standard deduction and lower taxes than single status.

With divorces nearing 900,000 per year, it's important to know that if a divorce is final before midnight on December 31, 2013, you are considered a single taxpayer in 2014.

Divorced women are taxed on any alimony they receive but do not pay tax on any child support.

One of the most common family structures next to the single parent household is the blended family, which is a combination of two parents with children from previous relationships and/or from the current relationship.

If you are unmarried but living with a partner, be mindful of the deductions that you can split and the ones that you can't. Take best advantage of each deduction.

When parents remarry, they may file a married filing jointly return with their new spouse, claiming the children from their new relationship and any eligible children from previous relationships.

Consider all of the good works that you do. Women are very giving of their time and resources and often overlook the deduction for charitable miles or out of pocket expenses.

Marriage does have its privileges however when buying a home.

Singles only get a $250,000 exclusion on gain from the sale of their home while married individuals get twice that.

Tax Day Could Bring Tax Surprises for Higher-Income Taxpayers

The Affordable Care Act contained more than 40 tax code changes. Some of the changes are resulting in increased tax bills for higher-income taxpayers, which could come as a surprise to many of them on Tax Day.



The phase-out of itemized deductions and personal exemptions, and the increase in Medicare taxes, as well as changes in tax rates on net investment income, lead the list of changes at the top.

Phase-out of itemized deductions and personal exemptions return for higher-income taxpayers

The phase-out of itemized deductions and personal exemptions have returned for those married filing jointly with adjusted gross income above $300,000 ($150,000 MFS) and $250,000 for all other filers.

From tax year 2012 to tax year 2013, a couple who earns $450,000 would see their itemized deductions reduced from $89,500 to $85,000 due to new limits preventing higher-income taxpayers from claiming a percentage of their total eligible itemized deductions. The reduction is based on income; as income over the threshold increases, allowable deductions decrease.

For 2012, before the phase-out of personal exemptions, a married couple filing jointly who earned $450,000 and had two dependent children was eligible to claim $15,200 in personal exemptions. For 2013, the same couple wouldn’t be eligible to claim personal exemptions because they exceeded the phase-out threshold.



Even if individual incomes don’t meet withholding threshold, married couples could still pay the additional Medicare tax

The additional Medicare tax increases the portion paid by employees by 0.9 percent, making it 2.35 percent. This is applied to wages, tips and some fringe benefits that exceed $250,000 for those married filing jointly ($125,000 MFS) and $200,000 for all other taxpayers.

For example, with this change a couple who earns $450,000 pays $1,575 for total additional Medicare taxes for 2013, while in 2012 they paid nothing because the law didn’t yet apply.

For many of these taxpayers the additional tax is automatically withheld from their regular paychecks. However, those who are self-employed or pay estimated income tax should be aware that they also are subject to the additional Medicare tax if the threshold is crossed. Married couples whose individual incomes are less than $200,001 (the point at which employers automatically start withholding for the tax) should investigate making adjustments to their Form W-4s if their combined income will exceed the $250,000 threshold.



Net investment income tax applies when adjusted gross income threshold is met

Net capital gains from the sale of stock, dividends, investments and other sources are subject to the new net investment income tax when adjusted gross income thresholds are met. This means a home sale could trigger the tax when the gain isn’t excluded from income under the special rules for sales of homes.

Taxpayers whose filing status is married filing jointly with modified adjusted gross income exceeding $250,000 ($125,000 MFS) and all other taxpayers whose income exceeds $200,000 could be subject to the tax. For example, a couple earning $450,000 who also has $25,000 in interest and dividends pays $950 for this tax in 2013, while in 2012 they paid nothing because the law didn’t yet apply.

Going forward, offsetting capital gains with capital losses could be beneficial; the tax only applies to net capital gain, which is the amount left when losses are subtracted from gain.

But, there is some good tax news for higher-income taxpayers. Among the other things permanently extended starting in 2013 is no estate tax if estate assets are less than $5.25 million. Plus, any unused estate tax exclusion can be transferred to a surviving spouse. Also, taxpayers may gift up to $14,000 per person to as many people as they want without paying gift tax. However, not understanding how changes in gift and estate tax provisions impact specific circumstances can be costly for individuals and families. For protection against financial surprises, take confusion out of the equation and talk to a tax professional.

H&R Block Get Your Billion Dollars Back Tax Scam

You’ve probably seen the commercials. H&R Block has been running advertisements this year telling everyone that they can get to listen that American taxpayers are giving $1 billion to the IRS that’s really their money — and all because they’re doing their own taxes instead of letting H&R Block do their taxes for them. H&R Block wants you to “Get Your Billions Back” since you are leaving so much money on the table.

To emphasize that huge $1 billion amount which isn’t being claimed, they are running a number of different commercials to show how much money that $1 billion is. One is where they have a concessionaire placing $500 on every seat in every stadium in the US:

What both these commercials do is lead you to believe is that by doing your own taxes, you’re making huge mistakes that could be costing you hundreds, if not thousands of dollars that you would be yours if you just let H&R Block do your taxes instead. They are using your fears of losing money doing your own taxes to try and convince you to let them do your taxes. It’s a good strategy on their part that happens to be a con game to make you fear you’re losing a ton of money doing your own taxes when in reality you’re not.

While they are hoping that you make the assumption that you’re losing $500 or more (like the amount they place on the stadium seats), the truth is that it’s likely you aren’t losing any money doing your own taxes. If you are losing money, it’s a whole lot less than the commercials imply. How do we know? Simply run the numbers.

There are over 50 million families that do their own taxes. That means that if all the families that are doing their own returns aren’t claiming $1 billion worth of deductions that they could claim, each family is failing to claim a little less than $20 each on their returns. Yes, that’s right. If you are doing your own taxes, on average you’re failing to claim about $20. Why don’t they say this in their commercials? Because they know perfectly well if they did, nobody would go to H&R Block to get their taxes done.

Still, $20 is $20, so why not have H&R Block find you that extra $20? A good question until you realize how much they charge to do your tax return. In 2013, H&R Block charged the average person just under $200 ($198) to do their taxes. If you do the math, you might save $20 from the IRS, but you end up losing $178 out of your own pocket to H&R block. All of a sudden, it doesn’t sound like such a great deal.

It gets even worse. If you read the fine print in the commercials, it says that a study shows that H&R Block is able to find savings for about 1 in 5 people who do their own taxes. That’s right. You need to pay nearly $200 for a 20% chance of getting a bit of savings from them. On the other hand, if they are only finding 1 in 5 people that can get a greater refund, that means the refund for those that they can find it for increases from $20 to $100. Of course, since you are paying nearly $200 for them to do your taxes, you are still coming out $100 behind by letting them do your taxes.

What this all says is that the “Get Your Billion Back” commercials are an extremely deceptive advertising campaign to make you think you’re losing a lot of money by doing your own taxes when in reality, you’re not. All you need to do is run the numbers, and they will tell you that you’ll likely spend much more of your own money getting your taxes done by H&R Block than you would if you did them yourself.

Did Americans Really Overpay by $1 Billion at Tax Time?

I heard a statistic on a running commercial series that is so shocking that I don't want to believe it's true: H&R Block claims Americans overpaid by $1 billion in taxes last year. Apparently this is enough for a stack of five hundred dollars to be placed on every seat of every NFL stadium (one on each of 2 million seats in the thirty two professional football stadiums).

I tried to find the methodology for this statistic, but H&R Block isn't making it very easy to find on their website or elsewhere on the internet. On the plus side, they do have a lot of interesting statistics about a billion dollars. Did you know that if you stack up a billion dollar bills, the pile is 109,250 meters high? Apparently, this billion comes, at least in part, from the 56 million Americans who will do their taxes on their own this year, and H&R Block estimates 11 million of those could contain errors that left money on the table. (Their site claims that H&R Block professionals found more money for one in five people, with $460 per person, on average.) So the question is: should people try to do my taxes on my own?

That said, the amount of money you would be leaving money on the table is, by definition, an "unknown unknown." If I were aware of the error, I'd correct it. But I'm not (so I can't, and I won't, but...) Using H&R Block's statistics, you have a 20% chance leaving money on the table, and that average error would cost you $460. But the math says you should not pay the extra $206 to hire a professional, for a one-in-five chance of netting $460. (I would need a one in five chance to net over $1,000 for the odds to point to hiring a professional.)  This also means that, even though Americans might have left one billion on the the table by not using H&R Block, they'd be paying H&R Block several times more than that had each one of those do-it-yourself tax payers simply paid them $246.- the average H&R Block fee.


But these are all just gross averages: who knows where your individual situation fits in? And then there's the fact that doing taxes is kind of a chore.It's boring, and there are better ways to spend a weekend. Regardless of the money spent, this might be a case for outsourcing.

Tax filing and planning tips for small business owners

With an April 15 tax deadline looming, businesses across the country are preparing to file their 2013 taxes. Tax season can be both an administrative and financial burden. New data reports that only 41 percent of small business owners feel very confident they are maximizing their tax benefits for the 2013 year, according to a recent Spark Business OmniPulse Survey conducted by Research Now. In fact, 22 percent of business owners plan to file for an extension this year. The survey also suggests small business owners are faced with a lack of resources and tools when it comes to filing their taxes.

Fortunately, there are a variety of ways to help prepare your business for tax season and minimize your tax burden. A few tips to help small business owners reduce stress and maximize tax benefits:

* Hire a professional. Meet with your accountant before you begin. Tax laws change every year, so a professional advisor or CPA can offer guidance on the latest legislation surrounding eligible tax deductions. Equip yourself with updated information at IRS.gov.

* Organize (and digitize) your records. Computerizing your paperwork is a good way to streamline operations and find forms quickly. The IRS requires that you keep paperwork from the last seven years, which includes bank and credit card statements, transactions and expenses.

* Manage finances year-round. To help maximize deductions, keep a detailed log of expenses throughout the year to easily reference when tax time rolls around. Based on what you spend, your business can be eligible to write-off office supplies, equipment, furniture, software, travel expenses and more. Consider streamlining all expenses on a business credit card account to help simplify tracking and maximize rewards.

* File for an extension. You still need to pay your bill, but your business could be eligible for a six-month paperwork extension. Nearly 40 percent of business owners say they plan to file for an extension because they don’t have the necessary background information. If you do choose to extend, make sure you file the extension by April 15 or else you could be subject to costly fines.

* Do your research. There are other great ways to help relieve your tax burden, like setting up a low-cost 401(k) plan for you and your employees. Contributions are tax-deferred, plus a 401(k) plan can be a great tool for employee recruitment, retention and morale. ShareBuilder 401k offers intuitive tools along with market-efficient investments and model portfolios designed to make setting up and selecting the right plan quick, easy and affordable.

Biggest urban legend in taxation - the Gift Tax

What is the biggest urban legend in the area of taxation?

If you answered “the gift tax,” score one for the home team.

The most common phone call received by tax professionals involve inquiries from parents or grandparents about whether or not they will have to pay gift tax on their monetary gifts. Adult children and grandchildren call to ask about whether they will have to pay a tax on gifts received. [Lots of hand-wringing going on]

Like the urban legends that struck fear in many of us as youngsters, the dark, scary world of gift taxes does the same to adults. One person whispers a rumor of a gift tax nightmare that some other person experienced and the urban legend grows and grows.

People fear the gift tax simply because they don’t understand how it works.

Knowledge conquers fear: Demystifying the gift tax

The gift tax is a real tax. You don’t necessarily need to pay it, but there are a number of rules surrounding this inconvenient tax.

First, any person can gift any individual up to $14,000 in 2014 and have no obligation to report it to the IRS. So mom and dad can give a combined $28,000 to their favorite child without creating any new filing requirements for themselves. But, if mom and dad gift little Johnny anything above that amount – even $28,001 -- they will need to file a gift tax return with their annual tax return.

Filing a gift tax return does not mean that these generous parents will automatically have to pay a gift tax (yes, the IRS assesses the gift tax based on the giver’s financial circumstances), but they will have to file the return. In fact, an individual owes no gift tax until he or she gives away the lifetime exclusion amount.

So what’s the lifetime exclusion amount?

For 2014, the lifetime exclusion amount is quite generous at $5,340,000! If you give away more than that, then you will owe gift tax – assessed at the whopping rate of 40 percent. This means that for the average taxpayer, fear of having to pay a gift tax represents an unfounded worry. You don’t need to add unnecessary sources of stress to your life.

Every rule has its exception (or two)

In some situations, you may not have to file a gift tax return even if you give over the annual limit.

Let’s suppose your favorite Aunt Martha is very sick and out of the goodness of your heart, you decide to pay her medical bills. No gift tax return is required, even if the amount exceeds $14,000. However this exception comes with an important caveat – you must pay the medical provider directly. If you give Aunt Martha the money and she then chooses to use it to pay her medical bills, you’ll need to file a gift tax return if the amount exceeds $14,000.

Another exception involves gifting money for higher education costs (i.e. college tuition). So, let’s say you decide to pay little Scarlet’s university tuition. You won’t need to file a gift tax return, even if the amount exceeds $14,000. But just like the example with Aunt Martha above, you’ll need to pay the money directly to the university. If you write young Scarlett a check for her tuition and the amount exceeds $14,000, you’ll need to file a gift tax return. By making payment directly to the educational institution, you can gift an unlimited amount of money with no obligation to file a gift tax return, or pay gift tax on it in the future.

Now you know the facts, so stop living in fear and embrace your desire to gift money to your loved ones. Unless you are giving away more than $5,340,000 you will not owe any gift tax.

Even so, any time you plan to give away large amounts of money, it’s wise to consider sitting down with a qualified tax professional. He or she may know of some legal ways to avoid the 40 percent rate on taxable gifts.

Filing an Extension Can Ease Stress As Tax Deadline Approaches

The IRS expects to process 148 million tax returns this year. So far, they’ve received 75 million, which means, well, a lot of you still have some work to do. April 15th is around the corner, but before you pull an all-nighter, Bob Meighan of TurboTax says consider this alternative.

"If you can’t get it done or you decide that you want to procrastinate for a few more months, file an extension. It's called form 4868," says Meighan.

That form, which is also available on the IRS website, essentially buys you an extra six months, no harm, no foul, but here’s the catch.

"If you owe any tax, you have to pay Uncle Sam by April 15th, so an extension of time to file is not an extension of time to pay," says Meighan.

After the deadline passes, that’s when the penalties start to kick in, and those can really add up.

We’ll start with the failure-to-file penalty, because that one’s the biggie. Five percent of your unpaid taxes for every month that your return is late. Let’s say you owe $3,000. You're looking at a penalty of $150 a month until you pay it. Again, this can be easily avoided by filing for an extension. When you do, you’ll want to send some money with it, a good faith estimate of what you think you owe. Because extension or no, any money you owe the government after April 15th is subject to the failure-to-pay penalty. That’s one half of one percent of the amount you owe for every month you owe it. Plus interest, of course.

"Whatever the interest rate is at the time, you’ll also owe that. So taxpayers that end up owing tax at the end of the year, if they don’t pay it right away, are going to get hit with even a higher bill because of all of the penalties and interest that continue," says Peggy Riley, an IRS spokesperson.

If you absolutely can't pay your balance by April 15th, you can always apply for an installment agreement. There is a one time application fee and your payment plan has be approved.

"And in most cases, as long as it’s a reasonable amount that you’re offering to pay, and it’s going to be paid off in a reasonable amount of time, they’re usually approved. So I always encourage people not to ignore it. It’s not going to go away, it’s actually going to get worse, so work with us and set up something that’s convenient for both," says Riley.