5 Smart Ways to Use Your Tax Refund

You can use your tax refund as you please, but using it wisely will bring lots of future rewards. Create a list of goals and mark items which can be achieved with the use of your tax refund. Here are some ideas which may help you spend your refund in a smart manner.TaxRefundSpending

Invest

Consider investing in the stock market. Although doing so comes with risks, selecting the right company to invest in can be quite profitable. The best markets are technology and pharmaceuticals.

Clear Debt

Prepare yourself for a vehicle or home purchase by improving your credit. Go through your credit report, and decide which items on your credit report should be paid off.

Pay Down Loans

If you have vehicle loans or a mortgage, using your tax refund to pay them down is a great idea. You are reducing the interest that you’ll pay and the number of payments left on the loan.

Establish Credit

Making a purchase, such as a vehicle or even a cell phone plan of your own, does help establish credit. Leave your refund alone and use it only to pay for these items.

Save Your Sanity

Sometimes you just need a break from life. Saving your sanity with a relaxing vacation is a smart way to use your tax refund and may help you perform your job duties better upon returning to work.

Think about the things in your life which are the most important, set goals and use your refund in a way which will benefit you the most. Consider items which will benefit you for multiple years rather than short term.

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How to File Your First Income Tax Return

You should not have fear when the time comes to file your first tax return. First time filers typically have a simple form to fill out, and this usually only takes a few minutes with most online tax preparation services. Take a deep breath and make sure your mind is focused before you begin.IncomeTaxScrabblePic

Gather Tax Forms

Your employer must postmark your W-2 or 1099 by January 31st of any given year. If you do not receive your W-2s by then, contact them immediately. Make sure they have your correct mailing address. Ensure that their employer tax identification numbers are included in the appropriate boxes.

Complete Deduction Worksheets

Even as a young individual, you may qualify for deductions. If you are in college or are a young parent, there are credits and deductions that you may be eligible for. Use the available worksheets to determine if you can take the credits.

Online preparation services will tell you immediately if you are eligible or not.

Double Check Information

Before you submit your first tax return you should double check every piece of information you’ve put down. Go back through each page and make sure that all of the numbers entered are correct. Read all of the additional questions asked and the answers to ensure that they are correct. This prevents tax return denial and reduces the likelihood of an audit.

Bottom Line

Take your time with your first return. There is no rush. Just make sure that your return is submitted, or at least postmarked, by the tax filing deadline. The deadline to file taxes in 2016 is April 18th instead of the typical April 15th date.

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Is Every Donation Tax Deductible?

Many believe that every donation to a charity is tax deductible. In actuality, there are charitable organizations which are not tax-exempt, and donations to these types of organizations are not tax deductible. The IRS offers a database of organizations so you can see if donating to a specific charity is tax-deductible.

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Look for 501(c)(3) Status

Whether it be money or tangible goods, in order for a donation to be tax deductible the organization to which it is given must hold 501(c) (3) status. Incorrectly writing off a deduction can result in the issuance of an audit. When organizations are tax exempt, you benefit from being allowed to deduct donations.

Time is not Deductible

Although time does have value, it is not tax deductible in terms of volunteering to work for an exempt charity. Volunteering is something done purely for charitable purposes, it has no value other than the joy of helping others. Some have attempted to deduct values based upon hours of volunteered time, but such attempts are not accepted.

Receiving a Gift for Making a Donation

Making a donation at charity events where prizes are awarded or items are raffled off are almost always non-tax deductible. This is because you receive something of value in return. So, even though your contribution seems like a charitable donation, in this instance it is actually a transaction between you and the charity.

Closing Thoughts

Prior to making donations, be sure to research the organization if tax deductibility is important to you. If it is not clearly listed in printed material that the organization in question is tax-exempt, inquire further for a definite answer. When donating items of value, always make sure that you get a receipt showing the value of the donation and what the item donated was.

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How to Get a Head Start on Next Year’s Taxes?

Getting a head start on the next tax year helps relieve some of the stress of preparation. Below you’ll find a list of the some of the steps you can take to be extra prepared for the next tax year.

Income tax can't be treated like a game

Make Valid Predictions

While you cannot predict the future, you can predict what may change regarding your tax situation. For instance, perhaps you are planning to purchase a new home, move to a new location or add a new member to your family. All of these instances can and will change your tax situation slightly.

Track Itemizations

Take a bit of time each quarter to keep up on itemizations. You can create a spreadsheet with running tallies which will help you produce totals for tax time. This is especially important if you have a lot of out-of-pocket medical expenses or self-employment or business expenses.

Organize Receipts

Keep all of your tax deductible receipts in one general area. It is ideal to categorize the receipts and put them in the proper file for organizational purposes. If you take the time to do this throughout the year, it can take days off of the tax preparation process.

Closing Thoughts

Scrambling at the last minute to find all of your necessary documents and receipts adds frustration to the tax preparation process.  Along with these few practices, also take some time to refresh yourself with tax laws and new deduction opportunities which may become available. Tax codes change over time and often taxpayers are unaware of additional deductions they may qualify for. Subscribing to tax-related newsletters helps to stay on top of important tax related topics.

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5 Things You Need to Know About Taxes in Your Twenties

Very often people don’t learn much about taxes until their twenties. This is usually because most people don’t get their first “career job” until they reach their twenties. Here are five things you should understand about taxes during this critical decade.RefundCheck

1. Refunds Don’t Necessarily Indicate Financial Intelligence

One thing that you will often hear on social media is a lot of people receiving tax refunds. Many of these people may spend refunds on things such as cars and other luxury items. A refund actually means that they overpaid the government and received the money back later, without interest. Invest your extra monthly in something that will pay interest.

2. Keep Track of Receipts

If you purchase a computer that you use for work, or if you have office supplies that come out of your own pocket, this is money which can be written off. Keep up with your receipts for proof during tax season and be sure to take advantage of the write-offs.

3. Write-Off Your Retirement Investment

Money which is invested in your retirement account up until the month of April of the year you file is something which can be written off. Invest in retirement to save on taxes and to save for old age.

4. All Income Counts

If you did a job that was under $600 and you didn’t receive a 1099, you will still need to claim the income. Remember to claim all income to save yourself from an audit later.

5. Keep Money on Hand

Keeping money on hand for your taxes if you owe will save you from having to use a credit card, and starting a cycle of being unprepared.  Save money for your taxes in the event that you owe, then fork it all over at once to avoid fees.

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What You Need to Know About Form 1095

Obamacare saw the healthcare system change forever. It also came with three new tax forms. The 1095 family of tax forms is there to determine if you need to make any shared responsibility payments. This is the fee you have to pay if you don’t have a valid health insurance policy.Form1095Pic

If you already have insurance, these forms will help you to determine if you are entitled to receive a tax credit.

What Do the Forms Mean?

  • Form 1095-A is issued by insurance companies participating in healthcare exchanges.
  • Form 1095-B is for companies with fewer than 50 employees who also offer health insurance policies.
  • Form 1095-C is for companies with more than 50 employees offering health insurance policies.

What Information Should You Provide?

The information you need to provide is pretty simple. Enter all the usual information on your tax form, such as name and social security number. You also need to mention how much coverage you have and how much you have paid for said coverage.

For companies, it’s vital that you enter the number of dependents and the level of coverage. It’s that simple.

How Much Am I Entitled to?

You can find out whether you are entitled to a premium tax credit from the IRS website, assuming you already have health insurance. If you don’t have enough health insurance, you can also discover how much you will have to pay to the Federal government.

These forms will be automatically issued to you, so don’t request them directly. This will stop you from having a situation where you have more forms than you need.

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Tax Prep Checklist

Preparing your taxes will be one of the most stressful courses of action you will take this year. Tax preparation becomes much easier when you have a list of exactly what you need. This guide will show you what you need to look at when it comes to preparing your taxes for this year.HamiltonEye

Do You Have the Right Forms?

The IRS website offers a full list of forms that you’ll need for your current situation. Try not to request certain forms, such as Form 1099, if they haven’t arrived yet to avoid the risk of receiving two forms, and therefore the IRS believing you have double the income.

Personal Information

  • Social security number.
  • Full name and address.
  • Any alimony arrangements, including the ex-spouse’s full name and social security number.

Evidence of Deductions

Before you make any deductions, make certain that you have evidence to support these deductions first. You should never make any deduction you can’t prove on paper. If you are unlucky enough to be audited, you will need this information to prove that your deduction was valid and fair.

Other Forms

Finally, you will need to show evidence of any payments you have made this year, along with anything you’ve received. This includes pay checks and any receipts for payments made for student loans and other such expenses. Remember that many of these receipts will also enable you to make deductions, so they’re worth keeping.

Conclusion

Tax preparation is simply about accuracy. Before you send away your tax return, make sure you check it with a tax professional to ensure you haven’t made any mistakes.

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An Overview of Form 1040EZ

Form 1040EZ is just one of many IRS forms you may come across. It’s a type of statement designed to report how much you’ve earned to the IRS. If this form is brand new to you, we are going to introduce you to the main facts.1040EZ

The Simplest Form

This is the easiest and fastest form to file with. It’s one of three income statements you can use to submit your income. You can only include salary, taxable interest, tips, and wages on this form. If you have anything else and you will have to use a different form.

Payments and Credits

The next section involves you looking into whether you are claiming working tax credits, or any other benefits. You will write down anything that’s withheld and combine it with the W-2 form you should have received. This information is used to calculate whether you are entitled to a tax refund or not. However, keep in mind that this form has limits regarding the type of credits that you can claim.

The Signature

It’s alarming how many tax returns are sent to the IRS without being signed. It’s vital that you sign it because if you don’t the form is considered invalid. If you’re filing jointly, your spouse must sign the form as well.

Do You Need a Tax Preparer?

Despite this being the simplest form, it’s still a complex document and can be difficult to fill out correctly, especially if you have minimal experience. It’s always worth consulting with a tax professional to receive a level of help proportionate to your current tax situation.

Spend your time researching various tax professionals in your area to see which one is best for you.

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Five Items You May Need Before Filing Taxes

Filing taxes isn’t always simple. There are certain things that can make your life easier. We are going to go through the five things you may need to successfully file your taxes.Form1040Pen

Tax Software

You can do things the old-fashioned way, but we wouldn’t recommend it. Tax software, such as TurboTax, is designed to make your filing as quick and as painless as possible. Even the free versions of tax software are great for most scenarios.

Knowledge of Forms

There are lots of forms you can acquire from the IRS website. Understand which forms you need. For example, the self-employed need Form 1099-MISC. If you receive dividends you need another type of 1099. Make sure you investigate this.

Paper Documentation

Paper documentation isn’t necessary for you. It’s necessary for the IRS should they decide to carry out an audit. Make sure you keep this information safe even after filing your taxes. You never know if they will decide to investigate.

Deadlines

You can get an extension, but this is only an extension on when you need to file not an extension on the deadline to actually pay your taxes. Mark the deadline on your calendar.

A Tax Preparer

Professional tax preparers are important allies for making sure you miss nothing. Go out of your way to spend time sifting through the various tax professionals operating in your local area. They will be able to show you what you need to file in order to avoid attracting unwanted attention from the IRS auditing team.

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Why Form 1099 is the Most Important Tax Form of All

Form 1099 is the holy grail of tax forms. It’s the form submitted to the IRS by the person who pays you. Nevertheless, it comes in many different variations. The self-employed will have them. The employed will have them. In addition, anyone else you think of will likely have a type of the 1099 IRS form.1099TaxForms

So why is Form 1099 the most important of all?

Income Statement

The 1099 form is essentially a statement of what you earned and who paid it to you. This is how the IRS determines how much tax you will need to pay to the Federal government this year. They tend to scrutinize this form more than most because even a slight slip-up could radically change the amount of tax you pay.

Independent Contractors

Independent contractors must use the Form 1099-MISC to account for any client who hires them and subsequently gives them more than $600 in income. As you can imagine, this demands excellent record keeping because this can get wild and confusing fast.

Stocks and Shares

The form 1099-DIV is for any investments you happen to have. If you receive dividends from various investments throughout the year, this is the form you have to fill out.

Interest also comes under this category, so you must not leave it out.

Conclusion

The form 1099 is the most important because it’s the statement of everything you have earned in the last year. For most people, this will just be the job they happen to have. For others, it will include a range of investments and private projects.

Make sure you get it right the first time!

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