"I have a quick question. Can you help me?"

 

It's the time of year when I get messages from self-preparers who say:  "I have a quick question.  Can you help me?"

Remember, a quick question is, "Is social security taxable?"

That's what I consider a quick question, but sadly, most quick questions are never simple questions.

For most tax questions, the answer is: "It depends."  Everything in tax hinges on the answer(s) to something else.

Is social security taxable? It depends.

Is social security taxable to the state? It depends on if it's taxable, to begin with, and on your state of residence. 

There may be quick tax questions, but there are no simple ones.  

I mulled it over, trying to think up a simple tax question, and I couldn't think of one.  Even the question "Is interest taxable?" has no simple answer.

Yes, it is.... but it also depends on other things. 

Taxes are a tremendously convoluted, complicated puzzle.   If you like puzzles, it's fun.  

I like puzzles. 

 

Mike Mead, EA, CTC

Alliance Financial & Income Tax

info@afitonline.com

816-220-2001

Schedule an appointment today.  

What do you do when it's tax time, but you don't have a tax pro you trust?

 

What do you do when it's tax time, but you don't have a tax pro you trust?

Tax pros aren't like ice cream stores where you can get a tiny white spoon and do a taste test.

Tax pros aren't like department stores where you can run your hands over all the different blankets to find just the one you want against your skin.

Tax pros aren't like perfume.  You can't spray a tiny dollop of us on your wrist to see how well we blend with you. 

So, how do you choose if you can't taste, feel, or smell us?

The best way is to read reviews and see what others say. Ask your friends for a referral.  And, look to see if the tax pro has a Facebook business page; see what the tax pro has to say.

Since the initials behind our names are confusing and unfamiliar to most folks, vet your pro carefully.  

Opting to go with the lowest-cost provider can leave you with a tax pro who won't return your calls if you get into trouble with the IRS.

I can't tell you how many new clients I have picked up over the years simply because their tax pro would not answer the phone when the client got a letter from the IRS.

Not every tax pro knows how to deal with the IRS.

Hire a tax pro who will answer your phone calls and emails.   Hire a tax pro who will stand behind her work.  Hire a tax pro who knows how to deal with the IRS.

Hire an Enrolled Agent...

Follow my Facebook business page.   It's entertaining and educational.

See you soon.

Mike Mead, EA, CTC

816-220-2001

Info@AFITonline.com

Alliance Financial & Income Tax

Schedule an appointment today.

Will You Be Paying Taxes in Retirement?

 Retirement is a much-anticipated phase of life, representing when you can finally bid farewell to the daily grind and enjoy the fruits of your labor. As you plan for retirement, one crucial aspect to consider is your tax liability during this golden period.

Many people assume they'll be free from tax burdens in retirement, but the reality is a bit more complex. In this blog, we'll delve into the various factors that could influence your tax obligations during retirement and provide insights into how you can navigate the tax landscape to make the most of your retirement savings.

Sources of Retirement Income

The extent to which you'll pay taxes during retirement depends largely on the sources of income you'll be receiving. Common sources of retirement income include:

1. Social Security:
   Depending on your overall income, a portion of your Social Security benefits may be taxable. The IRS uses a formula to determine the taxable portion, with up to 85% of your benefits subject to taxation.
2. Pension Plans:
   The tax treatment varies if you receive a pension from your former employer. Traditional pensions are generally taxable, while some public-sector pensions might be partially or entirely tax-exempt.
3. Traditional IRAs and 401(k)s:
   Withdrawals from these accounts are considered taxable income unless you've already paid taxes on the contributions (in the case of Roth IRAs and Roth 401(k)s).
4. Roth IRAs and Roth 401(k)s:
   Distributions from these accounts are generally tax-free as long as you meet certain requirements.
5. Investments and Savings:
   If you have investments, dividends, capital gains, and interest income could be subject to taxation, although often at preferential rates.
6. Annuities:
   The tax treatment of annuities can be complex and depends on the type of annuity and the source of funds used to purchase it.
7. Part-Time Work:
   If you continue to work during retirement, any income earned will be subject to regular income tax.
8. Rental Income:
   If you own rental properties, the income generated will also be subject to taxation.

Strategies to Manage Retirement Taxes

1. Diversification of Retirement Accounts:
   A mix of taxable and tax-advantaged accounts can give you flexibility in managing your taxable income during retirement.
2. Roth Conversions:
   Depending on your financial situation, converting traditional IRA or 401(k) assets to Roth accounts might be beneficial, as withdrawals from Roth accounts in retirement are usually tax-free.
3. Strategic Withdrawals:
   Planning when and how much to withdraw from different accounts can minimize your overall tax liability. For example, withdrawing from taxable accounts in years with lower income could be advantageous.
4. Location Matters:
   Some states have lower or no income taxes, which could significantly impact your tax burden in retirement if you decide to relocate.
5. Charitable Contributions:
   Donating to charitable causes benefits society and can also provide tax deductions, reducing your taxable income.
6. Healthcare Expenses:
   Health-related expenses can be deducted if they exceed a certain threshold, potentially reducing your taxable income.
7. Tax-Efficient Investments:
   Opt for investments that generate less taxable income, such as index funds or tax-efficient mutual funds.

While retirement is often associated with relaxation and leisure, it's essential to consider the potential tax implications that come with it. The taxes you'll pay in retirement depend on various factors, including your sources of income and the strategies you employ to manage your finances.

By understanding the tax landscape, leveraging tax-efficient strategies, and making informed decisions about your retirement accounts, you can make the most of your retirement savings and ensure a more financially secure future. Consulting a financial advisor or tax professional is crucial to tailor these strategies to your unique circumstances.

Tips for a Smooth Tax Season

 A new year means filing your 2023 tax return, which is right around the corner!

With tax documents such as W-2s and 1099s arriving soon in your inbox and mailbox, this month’s newsletter has some tips to help you stay organized this tax season. This will help you file your tax return (and potentially get your refund!) quickly.

Tax Deductions Available for Self-Employed Individuals

 Being self-employed comes with a sense of freedom and control over your work, but it also brings its fair share of responsibilities, including managing your taxes. The good news is that self-employed individuals can access various tax deductions that can help lighten the financial burden and allow them to keep more of their hard-earned money.

In this blog post, we'll explore some of the critical tax deductions available to self-employed individuals and provide tips on how to make the most of them.

1. Home Office Deduction
   If you use a portion of your home exclusively for business purposes, you may be eligible for the home office deduction. This deduction allows you to write off a percentage of your rent or mortgage, utilities, and other home-related expenses. To qualify, your home office must be your primary place of business, and it should be used regularly and exclusively for your business activities.
2. Business Expenses
   Self-employed individuals can deduct various business expenses necessary for their operations. These expenses might include office supplies, equipment, marketing, travel, professional fees, and more. Keeping detailed records of these expenses is crucial to ensure you can claim all eligible deductions.
3. Self-Employment Tax Deduction
   Unlike traditional employees, self-employed individuals are responsible for paying the employer and employee portions of Social Security and Medicare taxes. However, you can deduct the employer-equivalent portion of your self-employment tax, which can significantly reduce your overall tax liability.
4. Health Insurance Premiums
   Self-employed individuals often need to purchase their health insurance. The good news is that you can deduct the premiums you pay for medical, dental, and even long-term care insurance for yourself, your spouse, and your dependents as long as you're not eligible for coverage through another employer or government plan.
5. Retirement Contributions
   As a self-employed individual, you have various retirement savings options while enjoying tax benefits. Contributions to a Simplified Employee Pension (SEP) IRA, a Solo 401(k), or a SIMPLE IRA are deductible. They can provide a means to secure your financial future while reducing your current tax bill.
6. Education and Training
   Investing in your skills and knowledge is essential for any self-employed professional. Fortunately, you can often deduct the costs associated with business-related education and training, including workshops, courses, seminars, and relevant books or materials.
7. Business Use of Vehicles
   If you use a vehicle for your business, you can potentially deduct the expenses associated with its use. This deduction can be claimed by calculating the actual expenses related to the vehicle's business use or utilizing the standard mileage rate set by the IRS.

Navigating the world of self-employment taxes might seem overwhelming at first, but understanding the available tax deductions can significantly ease the burden. By keeping accurate records, seeking professional advice when needed, and staying informed about changes in tax laws, you can ensure that you're making the most of every deduction available to you.

Remember, every dollar you save on taxes is a dollar you can reinvest in your business and your financial well-being.

2024 Tax Credits & Deductions for Jackson County Taxpayers

 

Before I get you thinking about the new year and being tax savvy, let’s first address the 2023 tax filing season, which is fast approaching. 

 

It’s a good idea to go ahead and get on my schedule now to handle your 2023 tax filing. Though the IRS doesn’t officially start receiving 1040 forms until the end of January/early February, it doesn’t mean you have to wait to start sorting through your paperwork or make a deadline for yourself at the beginning of tax season rather than the end.

 

https://www.afitonline.com/appointments

 

And some really good news looking back on 2020 and 2021 (if you’re still paying off debts from those years), the IRS is waving the failure to pay penalties on assessed taxes less than $100,000. If you made payments toward your balance owed or already paid these, a credit will automatically be applied to any other tax year you still owe — otherwise, you’ll receive a refund. 

 

Now, let’s talk about this year. Yes, tax season is coming, and you’re probably thinking about 2023, but as your trusted Jackson County tax professional, I want to help you start planning for 2024, too. Because some tax changes are now in effect, it should influence how you approach the coming year. 

 

So, let’s jump into that today, and then in the coming weeks, I’ll be talking more about what you need to gather for your upcoming tax appointment.

 

2024 Tax Credits & Deductions for Jackson County Taxpayers 
“The way to get started is to quit talking and begin doing.” – Walt Disney.

 

As we usher in 2024, goals may be on our minds, but our wallets are giving the side-eye to the impending tax season. Though you’re probably more focused on the 2023 tax filing, which begins in little less than a month, it’s also the right time to start thinking ahead beyond that. 

 

The IRS has made some updates to various filing categories — specifically credits, deductions, and inflationary adjustments for the 2024 tax season.

 

So, let’s cut to the chase and dig into those updates. The IRS has made a few noteworthy moves for 2024…

 

Standard Deductions & Tax Rate Increases

 

The standard deductions are seeing bumps, thanks to IRS adjustments for inflation in 2024. 

• For married couples filing jointly in tax year 2024, the standard deduction has increased to $29,200. That’s a $1,500 increase from what you can claim for 2023’s taxes. 
• Singles have a bumped-up deduction of $14,600, marking a $750 increase. 
• Heads of households get a substantial $21,900, up by $1,100 from the previous year.

 

Marginal tax rates for 2024 remain the same, with the top rate at 37% for individual single taxpayers with incomes over $609,350 (or $731,200 for married couples filing jointly). 

 

Also, the AMT exemption (Alternative Minimum Tax) amount for 2024 is $85,700 ($133,300 for married couples filing jointly), signaling an increase from the $81,300 in 2023. Remember, it starts to phase out at $609,350 for individuals (phase out at $1,218,700 for married couples filing jointly).

 

Taking Credit

 

Tax credits are also seeing a boost in 2024, which should help offset rising costs for you. 

1.    The Earned Income Tax Credit (EITC): This credit increases to $7,830 for qualifying folks with three or more qualifying children (up almost $400 from 2023). 

2.    The Child Tax Credit (CTC): The CTC is up to $2,000 per qualifying child. To qualify, the child must be 17 or under (or 24 if they’re full-time students) and living in your house for at least half the year. 

3.    Adoption Credit: The maximum credit allowed for adoptions in 2024 is up to $16,810, increased from $15,950 in 2023. 

4.    Estate Tax Exclusion: Estates of decedents who die in 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 in 2023.

5.    Gift Tax Exclusion: The annual gift exclusion increases to $18,000 for calendar year 2024, up from $17,000 in 2023.

 

Medical Expense Deductions & Other Credits

 

Suppose you’ve spent more than 7.5 percent of your AGI on medical expenses. In that case, there are some deductions you can snag, including prescription drugs, hospital visits, home improvements for health, dental, and vision costs, and even travel expenses to medical spots. 

So, if your AGI is $50,000 and you have $10,000 in total deductible medical expenses, 7.5% of $50,000 is $3,750. You can deduct $6,250 of medical expenses from your itemized deductions.

This does not include elective cosmetic procedures, though. 

And if you’re a freelancer or independent contractor – you can likely deduct your long-term care insurance and health insurance premiums. 

Other Highlights

Let’s fast-track through some other credits and deductions you can optimize for in 2024.

Education Credits. If you’re investing in education, credits like the American Opportunity Credit can ease the financial load of post-secondary education expenses.

Energy-Efficient Home Upgrades. Sprucing up your San Jose home? There are tax credits for that – from upgrading windows to installing solar panels..

Saver’s Credit. If you’re saving for retirement and fall in the low-to-moderate income bracket, the Saver’s Credit can give you a little extra boost when you contribute to retirement accounts (up to $1,000 credit or $2,000 if filing jointly).

As you navigate the tax landscape for 2024, keep these updates in your toolkit. And we’ll keep you posted on developments for these so you can make the most of each opportunity. 

And make sure to stay tuned for more helpful info about 2023 tax filing in the coming weeks.

Ready for 2024, 

 

Mike Mead, EA, CTC

What Happens If You Don't Pay Your Taxes?

 

Taxes are the lifeblood of any functioning society, providing the necessary funds to support government programs and services. Filing and paying taxes might not be the most exciting aspect of adult life, but it's a civic duty we all share.

Failure to pay taxes can have serious consequences, ranging from financial penalties to legal troubles. In this blog, we'll explore what happens if you don't pay your taxes and why fulfilling this obligation is crucial.

1. Accruing Interest and Penalties
   One of the immediate consequences of not paying your taxes on time is the accrual of interest and penalties. Tax agencies often charge interest on the unpaid amount, which can compound over time and increase your overall debt. Additionally, there are usually penalties associated with late payments, which are typically calculated as a percentage of the unpaid taxes. These financial consequences can quickly snowball, making it even more challenging to settle your debt.
   
2. Tax Liens and Levies
   If you ignore your tax obligations, the government might place a tax lien on your assets. A tax lien is a legal claim against your property, such as your home or other valuable assets. This prevents you from selling or transferring these assets without settling your tax debt. In more severe cases, tax authorities can issue a levy, allowing them to seize and sell your property to satisfy the unpaid taxes. This can lead to significant financial distress and disrupt your life.
   
3. Garnishment of Wages
   If you have a regular job, your wages could be garnished to cover your outstanding tax debt. Wage garnishment involves the tax agency legally collecting a portion of your earnings for your tax bill. This can directly impact your ability to meet your day-to-day expenses and financial commitments.
   
4. Legal Action and Criminal Charges
   Tax evasion is a serious offense that can result in criminal charges. If you deliberately and knowingly avoid paying taxes, you could face prosecution. Criminal charges can lead to fines and even imprisonment, depending on the severity of the evasion and the laws in your jurisdiction. It's important to note that neglecting your tax obligations can still have legal repercussions even if you didn't intend to evade taxes.
   
5. Damage to Credit Score
   Unpaid taxes can also impact your credit score, making securing loans, credit cards, or favorable interest rates difficult. Many tax agencies report unpaid tax debts to credit bureaus, which can stay on your credit report for years. This can hinder your ability to make significant financial decisions, such as buying a home or starting a business.
   
6. Collection Efforts
   Tax authorities have various tools at their disposal to collect unpaid taxes. They can issue bank levies, where they seize funds directly from your bank account or initiate property seizures to satisfy your debt. These collection efforts can disrupt your financial stability and leave you in a difficult situation.
   

Avoiding tax payments might seem tempting in the short term, but the consequences are far-reaching and can impact your financial and legal well-being. It's crucial to understand that paying taxes isn't just a legal requirement but a responsibility supporting essential public services and infrastructure. Suppose you're struggling to meet your tax obligations.

In that case, exploring options such as installment agreements or seeking professional advice to navigate your situation while avoiding the most severe consequences is advisable. Remember, proactive tax compliance is in your best interest for maintaining a stable and secure financial future.