income taxes - The Finance Gourmet

IRS Standard Deduction 2017

What is the standard deduction amount for 2017? The IRS updated the number and it’s a little bit higher this year.

When filing income taxes, taxpayers can choose to either itemize tax deductions, or take the standard tax deduction amount. The IRS adjusts how much the standard deduction is each year based upon inflation. The 2017 standard tax deduction amount is the same as the 2016 deduction amount for most taxpayers because of limited inflation.

2017 Standard Tax Deduction Amount

As usual, there are different deduction values depending upon how you file your income taxes.

Filing Single: The 2017 standard Deduction is $6,350, up $50 from 2016.
Married Filing Jointly: Standard deduction for married filing jointly in 2016 is $12,700, which is up $100 from 2016.
Head of Household: The head of household standard deduction is now $9,350, which is a $50 bump over the $9,300 standard deduction amount in in 2016.

If taxpayers use the standard deduction when filing taxes, the personal exemption is included in the standard tax deduction amount. However, when itemizing tax deductions the personal exemption amount is important.

For 2017, the personal exemption amount is $4,050, which is the same as it was in 2016.. However, taxpayers with incomes above $261,500 (filing single), or $313,800 (married filing jointly) are subject to phase-out of the personal exemption.

Itemize or Use Standard Tax Deduction

To decide whether to itemize deductions, or take the standard deduction, taxpayers should add up their potential itemized tax deductions, and add the personal exemption amount. If that total amount is greater than the applicable standard tax deduction, then itemizing will result in lower taxes.

For most taxpayers whose income comes mainly from salary or other employment, rather than investment income, trust income, or other income, the main determinate of whether itemizing or taking the standard deduction is best is how much mortgage interest is deductible. Typically, without deductible mortgage interest of at least $3,000 or more, the average taxpayer will not have enough deductions to making itemizing better than taking the standard deduction.

All reputable tax software, calculates whether it is better for a tax payer to itemize or not. If doing taxes by hand, then, find the big deductions first, and see if they provide anywhere near the standard deduction number. Itemized deductions are reported to the IRS on Schedule A of the Form 1040.

Other large deductions include medical expenses, but only if they exceed 9 percent of your income, and property taxes.

Deductions Without Itemizing

Many tax deductions are available without itemizing. To see a complete list, check lines 23 through 35 on IRS Form 1040. On lines 49 through 53 are various tax credits that are available whether the standard deduction or itemized deductions are used.

Common tax deductions without itemizing include: educator expenses, health savings account deduction, moving expenses, IRA deductions, student loan interest, and tuition and fees.

Common tax credits offered with, or without itemizing, include the child tax credit and education credits.

Standard Deduction with Small Business

It is still possible to take the standard deduction if you own a small business. Many small businesses files a Schedule C to report income and expenses related to the business. A Schedule C can be filed with, or without a Schedule A for itemized deductions. The results of the Schedule C are reported on Line 12 of the 1040 Form, not within Schedule A. Various businesses can have large deductions (and income) including the home office deduction.

Other Tax Information

Here is how to get an IRS tax transcript and information on what happens if you don’t file your taxes on time.

How Long To Keep Tax Returns

Written by Finance Gourmet 1 Comment

Tax Day is today. Hope you are ready!

If you have already filed, there is one more piece of tax business you can attend to before you run off into your summer. Time to shred some old tax returns and documents.

IRS Rule For How Long To Keep Taxes

The general rule for how long you have to keep your tax returns and other tax records is three years. HOWEVER, this is the IRS we are talking about, so there are some exceptions, and sub-rules to the general rule.

First, you need to know when to count from. The 3-year rule counts three years from the date you FILED them. So, if you filed early, you don’t technically have to wait until April 15 (I always do. Better safe than sorry.) On the other hand, if you filed late, whether with an extension or not, you need to keep them for three years from that date. Also, the IRS says you should keep your returns for two years after you paid the tax, so if you ended up paying late, or on some sort of payment plan, be sure to keep them for two years after that tax bill has been completely paid.

What Tax Documents to Keep Longer

If you claim a loss from worthless securities, or a bad debt, you have to keep those records (including the return itself) for 7 years.

You need to keep employment records for 4 years after the tax is due.

Any records that are tied to property you need to keep until you are done depreciating that property. With the larger 179 Deduction these days, this doesn’t apply to as many small businesses as it once did, but if you are depreciating something over 11 years, then you need all 11 years of records, should the IRS come calling.

Health records if you have an HSA. Health Savings Accounts are a great way to deduct health care expenses by first contributing the money into an HSA before paying your expenses. However, because there can theoretically be years between contributions and expenses, and you can technically wait as long as you want to claim those expenses (even years later), there is a good chance that you might end up needing more than three years worth of medical expenses should the IRS every come calling about your HSA. You should keep your medical records indefinitely for now, which means you’ll need to go through your taxes and pull them out, or keep them separately from the beginning. Using some sort of electronic records is a good strategy as well.

Fraud and Failure to File

Did you think you were in the clear after three years? Not so fast. Note that all of these limitations start from the DATE YOU FILE. That means if you didn’t file a return, the clock never starts. Technically speaking, you should keep your records forever if you didn’t file.

Here is my Acorns review.

The same applies for a fraudulent return. In other words, if you claim $50,000 in non-existent security losses, you won’t be able to hide behind the record limitations as an excuse to not have proof of your losses.

Shred Those 2013 Taxes

So, assuming none of the exceptions apply to you, and that you don’t need those records for other purposes, like business contracts or records, or your lender/banks want them kept, or maybe for insurance purposes, then it’s time to shred.

Since it is April 18th, if you filed on time for 2013 (which means you filed them by April 15, 2014) then you are int he clear to shred taxes from 2013 and earlier. Everything else, you still have to keep.

Wondering is WalletHub is legit?

Tax Day Cometh

Written by Finance Gourmet 1 Comment

Gah!!!!

That sound you hear is millions of Americans slowly realizing their taxes are due on April 15th, only they aren’t this year.

This year, they are due on April 18th, because April 15th is on a Saturday, and April 17th (the Monday), is a holiday in Washington D.C. So, April 18th is tax day in 2017.

Happy extra three days to file, America!

Credit Karma Tax Review Free Scam or Good Filing?

Written by Finance Gourmet 17 Comments

Update: See the comments below, plus the emails I got, and it seems that while Credit Karma Taxes does work, it has problems where most new software does, around the edges. Everything from state-specific glitches, to problems with bank transfers, it seems that those are the places where Credit Karma tax filing doesn’t work so well, compared to programs like TurboTax or TaxCut that have had years to chase those bugs out of their versions.

Credit Karma Tax Review

CreditKarma.com recently started offering a new free tax return service, so it’s time for a Credit Karma tax review. The Credit Karma tax scam concerns are pretty much the same as with the original Credit Karma. You are handing over a lot of personal and financial data. The company has been around long enough to have earned some trust, but concerns about all online financial offerings are real. One main difference between Credit Karma and TurboTax, or other offerings, is that you cannot buy and download an offline version. You will fill out all tax forms online and the hidden Credit Karma tax calculator will perform all the calculations online, behind the scenes.

Initial Credit Karma tax reviews are mixed, so let’s take a look. (Make sure you are not on CreditCarma, KreditKarma, or any other variations which have been reported as scams.)

First and foremost, you must sign up for Credit Karma in order to use the free tax filing software option. If you don’t like this, then you’ll need to do your taxes somewhere else. This is also how the Credit Karma free taxes offering makes its money. It is basically, a way to entice people to join and use the traditional Credit Karma system. The main Credit Karma shows you ads and offers to get credit cards and loans. They also send out periodic emails reminding you to come back and check your free credit score, and market credit cards that you “may qualify for.”

Credit Karma Tax Complaints and Concerns

It looks like Credit Karma is ready for some complaints and concerns about its free tax service. The front page attempts to answer some basic questions common to typical free tax filing scams. For example, it calls its service “Truly free tax returns,” and says there are no upsells, no hidden fees, and that it is free for everyone. This is because many so-called free tax offers end up doing one of those things. So far, there should be no Credit Karma tax complaints about any of that.

For example, the original business model for TurboTax online was to let you fill out your return for free, but then charge you to file your return, or to print it. This, of course, means it isn’t free at all, since doing your taxes, but neither filing nor printing them, is inherently useless. This year, TurboTax says, Free to File and Free to Start. Notice what’s missing?

But, this isn’t a CreditKarma tax review vs TurboTax review, this is just a Credit Karma tax return review.

The main CreditKarma tax complaint, that I hear, revolves around giving them so much information. In particular, some people don’t like having to give out a phone number. I suppose, if you are willing to hand over your address, your Social Security number, and all your bank information, but NOT your phone number, then this isn’t for you. It seems an odd place to draw the line, but always stick with what you are comfortable with.

So, let’s start with what we can find in bold before we search the fine print. First, it says that you get free federal and state e-filing. It says that they won’t charge any fees on your refund (if you get one). This was an older trick to get people to file for free, and then require that they get their refund on a debit card, or into a certain account, often with a fee. Faster, or rapid, refunds often still have fees, because they are actually loans with your refund as collateral. It doesn’t appear that Credit Karma offers a rapid refund type service.

Who Can Use Credit Karma Tax For Free?

Often times, free tax offerings are limited to the very basic kinds of tax returns. This was another trick of TurboTax, TaxCut, and the like. If you were filling out a 1040-EZ, then your taxes were totally free. Of course, filling out a 1040-EZ takes about 10 minutes and isn’t at all complicated, so it wasn’t worth much. According to Credit Karma they support a pretty wide range of tax returns, so let’s start with what they do not support when using Credit Karma taxes.

You cannot do your taxes on CreditKarma if you:

Need to do multi-state or part-year state filing — This should only really matter if you moved or happen to split time between two states. This is much more common in the Northeast where the states are pretty small and someone can realistically work/live across state lines.
Need to report Foreign Income – This can get tricky fast, so I don’t blame them here.
Need to file Married Filing Separately, in community property states. – I can’t claim to have any knowledge about what the deal is with this, but if it sounds like you, don’t use Credit Karma tax to do your taxes.

Credit Karma tax filing says it supports all the basics, plus a lot of the more advanced forms as well. Schedule A, for itemized deduction is a must, and it’s supported. There is also Schedule B and D (interest and dividends, and capital gains). Forms for Child Care, HSA accounts, and all of the other “usual” IRS forms I could think of were supported as well. I pulled up my taxes from last year, and while my return isn’t super complicated, I am usually forced to buy higher-end tax software to complete my taxes. I did find that Credit Karma says it supports all of the Forms I used to file my taxes last year.

Can Small Business Owners or Self-Employed Use Credit Karma?

As a small business owner, no Credit Karma tax review is complete without knowing if I can even use it. This is where most free tax offerings bail out. As a self-employed, freelance writer, with an LLC, I’ve never been able to use a free tax service. In fact, I actually have to buy the more expensive versions to do my taxes, mostly because I use the home office tax deduction. Credit Karma tax says you can file as self-employed or as a single member LLC. It specifically states that it will do a Schedule C, a Schedule E and a Schedule SE. Dig a little deeper and it does support Form 8829, which is the Home Office tax deduction form, as well as other small business tax forms.

However, you cannot use Credit Karma free tax filings if you need forms used for an S corp, a C corp, partnerships, or multi-member LLC. That means, it’s basically self-employed (just you, and possibly a spouse) only.

What Is the Catch for Using Credit Karma Tax?

So, what’s the catch for using CreditKarma tax? The free Credit Karma tax catch is that when you sign up, you agree to let them use the information from preparing your taxes for the rest of their business as well, which is referring you to lenders via targeted offers and ads.

It isn’t really a catch so much, as you have to remember what the company is, and how Credit Karma makes its money. All of CreditKarma.com revenue comes from ads and referrals to lenders. Credit Karma offers you a free credit score so it can pull your credit report. Once it has your credit report, it can use that information to match you with lenders. For example, if you have crummy credit, it can offer you cards for bad credit. Alternatively, if you have great credit, it can offer you harder to qualify for cards with better rewards.

There are, however, things missing from your credit report. Your income is the biggest one, and it’s also very important to lenders. Also, your credit report shows what your mortgage balance is, and then your mortgage interest tax deduction provides and easy way to calculate the interest rate, so they know what kind of refinancing to offer to you. If you do have a small business, your Schedule C lets Credit Karma know to offer you business credit cards. The amount of revenue and expenses on that Schedule C gives them an idea of which business credit card to offer, and so on.

Using Credit Karma Tax Filing Software

The online Credit Karma tax works pretty much the same as they all do. It starts by asking you questions. Are you married? Do you have kids? Did you do this, or that during 2016, and so on. As with all tax preparation software, the trick comes when you aren’t really sure about something. Does selling things on the side at eBay count as a small business? Does a new adding machine count as an office supply, or as office equipment, and so on. Theoretically, there are various help options from Credit Karma and everyone else to help answer some of these questions. If you are or are not comfortable using TurboTax, the same probably applies to Credit Karma’s taxes service too.

Once you’ve answered the questions, you start filling in numbers from the various tax forms you have W2, 1099, and so on. Credit Karma does all the math and fills out the forms as it goes. When you are finished you can e-File directly with the IRS, and your state. You can also print your taxes. I highly encourage you to print your taxes when you e-File them. Keep the paper copy for three years. With a new tax service like this, you don’t want to depend on them to keep your data. (This is true for any online tax service.)

Importing TurboTax Into Credit Karma

One last possible Credit Karma tax gotcha is that while most tax software, like TurboTax, TaxCut, H&R Block, and Tax Slayer, will import your previous year tax data from other software, Credit Karma taxes do not import from any other service, so you’ll have to enter everything manually. This is particularly tricky for things that are carried over from year to year, but not such a big deal if you have a simple return. Still, it is important to note for this CreditKarma tax review.

Other Free Tax Filing Services

Keep in mind that if you have a simple return, and make less than $64,000, you can already use the IRS own Free File Software. Yes, you have to give them all your financial information too, but let’s face it, they already have it anyway.