There are a lot of new things to get used to when you change jobs, from new responsibilities to adjusting to a new company culture. One thing you may not have considered are the tax issues created when you change jobs. Here are tips to reduce any potential tax problems related to making a job change this coming year.
5 Tax Tips for Job Changers
Finding a new job can be an exciting experience, and one that can create tax consequences if not handled correctly. Feel free to call Ellsworth & Associates to discuss your individual situation.
The Free Application for Federal Student Aid (FAFSA) is a tool students use to apply for more than $120 billion in federal funds. Regrettably, every year countless students miss out. A report from NerdWallet estimates that $1,861 per eligible high school graduate of free federal grant money went unused throughout 2014 because they did not submit a FAFSA.
Even if you don't think you or your child meet the requirements for federal aid, filling out a FAFSA is important because it might be used to decide eligibility for nonfederal aid and private funds.
FAFSA Available Oct. 1
Previously, the FAFSA was not available until January. A recent change now makes the application available Oct. 1. This is because the 2018-19 FAFSA can be completed with your 2016 tax information.
Avoid FAFSA Mistakes
Don't forgo federal student aid by making one of the following common filing mistakes:
Mistake: Not reading the instructions or questions
Tip: Answer all the questions, even if the answer is zero. If left blank, a question will be considered unanswered. Here are some quick tips:
Mistake: Incorrect, incomplete, or nonmatching data
Tip: Complete the FAFSA online. Although you can complete the FAFSA on paper, it takes only three to five days to process when submitted electronically. The online version has built-in safeguards that identify and prevent many errors. Plus, the IRS Data Retrieval Tool can import information directly from your tax return. Logging in with a Federal Student Aid (FSA) ID will automatically load basic information (e.g., name, birthdate, and Social Security number), reducing the likelihood of typos. You'll even receive confirmation of receipt once you submit your online application.
Mistake: Not filing on time
Tip: Note the new October FAFSA filing start date and get the application submitted as soon as possible. The sooner you or your child gets started, the higher the likelihood of being awarded funds, since many are distributed on a first-come, first-served basis.
Remember, students need to complete a FAFSA each year because eligibility does not carry over and can vary based on circumstances. Students can use the FAFSA Web Worksheet now to gather and organize the data needed for their application, available at fafsa.gov.
The IRS announced this week that Hurricane Irma victims in parts of Florida and elsewhere have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments.
This relief is similar to what was granted last month for victims of Hurricane Harvey. It includes an added filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15.
The IRS is offering this relief to any area designated by FEMA as qualifying for individual assistance. Parts of Florida, Puerto Rico and the Virgin Islands are now eligible, but taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief.
The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 4, 2017 in Florida and Sept. 5, 2017 in Puerto Rico and the Virgin Islands. Thus, affected individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes that were originally due during this period.
This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. Because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.
The IRS automatically gives filing and penalty relief to any taxpayer with an IRS address of record in the disaster area. So, taxpayers do not need to contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty removed.
The IRS will also work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers aiding the relief activities who are with a recognized government or philanthropic organization.
Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016).
When was the last time you reviewed your insurance coverage? An annual insurance review makes good financial sense. Here are points to consider as you review your various insurance policies.
When it comes to choosing where to live during retirement, weather isn't the only consideration. State and local tax laws have a significant impact on your nest egg.
The charts below show the highest and lowest state tax rates and costs of living, from data provided by nonprofit think tanks the Tax Foundation and the Council for Community and Economic Research.
State Income Tax Rates
State and Local Sales Taxes
(state and average local tax rates combined)
(Rankings based on the statewide average of local rates.)
If taxes were the only consideration in our retirement destinations, everyone would move to Alaska, which has no state income or sales taxes. However, the "last frontier" state also has one of the highest costs of living in the U.S. Therefore, you may also wish to consider which states have high and low costs of living.
Don't Forget: Cost of Living
There are a lot of positive things about getting married, but the IRS' marriage penalty isn't one of them.
The marriage penalty occurs when you pay more tax as a married couple than you would as two single filers making the same amount of money. It pops up again and again in the federal tax code.
The Tax Rate Problem
After two people are joined in matrimony, you may think the income levels for their tax brackets would simply be double what they were when they were single. But that's not the case: instead, the thresholds to move into a higher tax bracket are lower for married couples.
Example: As a single filer, Mr. Smith's $90,000 income has a top tax rate of 25 percent, the same as his bride-to-be's tax rate on her $75,000 income. Once they're married, their combined income of $165,000 moves their top income tax rate to 28 percent. In this case, being married exposes some of their income to an extra 3 percent tax versus staying single.
Married couples also see personal exemptions and itemized deductions phase out faster than for single filers. These deductions begin to phase out when adjusted gross income is greater than $261,500 for single filers, but only $313,800 (versus an expected amount of $523,000) if you’re married filing a joint return.
These tax benefit phase-outs don't just affect upper-income taxpayers. Even the earned income tax credit (EITC) phase-outs favor single over married taxpayers. A single mother of three can qualify for the EITC with income less than $48,340, while a married couple loses the EITC with combined income over $53,930. In this way, a married couple with $27,000 in income each are severely penalized when using the EITC when compared with staying single.
ACA Piles onto the Marriage Penalty
The Affordable Care Act (also known as "Obamacare") also penalizes married couples with lower thresholds on its 0.9 percent wage surtax and 3.8 percent investment income tax. The income thresholds for these surtaxes are $200,000 for single filers and $250,000 for married couples filing jointly. As a result, singles who each earn $125,000 to $200,000 can get hit with the extra tax after they marry.
Unfortunately, there are some couples who simply decide not to marry to avoid the marriage penalty. If you are planning to marry in the near future, don't be caught by surprise with a larger than expected tax bill.
It's not an easy time to buy a house, but it can be done. Nationwide, US house prices rose to their highest levels ever in November and have stayed elevated, according to the Case-Shiller Index tracking single-family home sales. Residential inventories also reached their lowest levels on record during the first three months of 2017, the real estate data site Trulia reported.
With high prices and low supply, homebuyers have to tackle the buying process differently than they would in a flat or down market. If you can, it may be worthwhile to wait to buy a house until the market cycle changes. However, that's not always an option.
Preparation Is Key
In a seller's market you'll be competing with other motivated buyers for the house you want, so there's a benefit to acting quickly. If you take these steps to prepare, you can be fast and competitive without being frantic.
Land Your Dream Home
Your finances are ready; you've researched what you want; and you secured the help you need. Here are the next steps to landing your dream home in a tight market.
There are many resources available to you to navigate the home-buying waters. Spend some time finding the resources that work best for you and your situation.
Two-thirds of the Baby Boomer generation are now working or plan to work beyond age 65, according to a recent Transamerica Institute study. Some report they need to work because their savings declined during the financial crisis, while others say they choose to work because of a greater sense of purpose and engagement that working provides for them.
Whatever your reason for continuing to work into your golden years, here are some tips to make sure you get the greatest benefit from your efforts:
If you recently got married, plan to get married, or know someone taking the matrimonial plunge, here are some important tax tips every new bride and groom should know:
Notify Social Security. Notify the Social Security Administration (SSA) of any name changes by filling out Form SS-5. The IRS matches names with the SSA and may reject your joint tax return if the names don't match what the SSA has on file.
Address change notification. If either of you are moving, update your address with your employer as well as the Postal Service. This will ensure your W-2s are correctly stated and delivered to you at the end of the year. You will also need to update the IRS with your new address using Form 8822.
Review your benefits. Getting married allows you to make mid-year changes to employer benefit plans. Take the time to review health, dental, auto, and home insurance plans and update your coverage. If both of you have employer health plans, you need to decide whether it makes sense for each of you to keep your plans or whether it's better for one to join the other's plan as a spouse. Pay special attention to the tax implication of changes in health savings accounts, dependent childcare benefits and other employer pre-tax benefits.
Update your withholdings. You will need to recalculate your payroll withholdings and file new W-4s reflecting your new status. If both of you work, your combined income could put you in a higher tax bracket. This can result in reduced and phased-out benefits. This phenomenon is known as the "marriage penalty."
Update beneficiaries and other legal documents. Review your legal documents to make sure the names and addresses reflect your new marital status. This includes bank accounts, credit cards, property titles, insurance policies and living wills. Even more importantly, review and update beneficiaries on each of your retirement savings accounts and pensions.
Understand the tax impact of your residence. If you are selling one or two residences, review how capital gains tax laws apply to your situation. This is especially important if one of you has been in your home for only a short time or if either home has appreciated in value. This review should be done prior to getting married to maximize your tax benefits.
Sit down with an expert. It is natural for newlyweds to focus their attention on the big day. There are so many decisions to be made from selecting a venue to planning the honeymoon. Because of this, reviewing your tax situation often is an afterthought. Do not make this mistake. A simple tax and financial planning session prior to the big day can save on future headaches and avoid potentially expensive tax mistakes.
A name change can have an effect on taxes. All the names on a taxpayer’s tax return must match Social Security records. A name mismatch can delay a tax refund.
Here’s what you should know if you changed your name during 2016: