Earlier this year, hackers managed to breach the security of Equifax, one of the three national credit reporting agencies. More than 143 million Americans — almost half the US — were exposed to the attack, and may have had their personal information stolen, including names, birthdates, Social Security numbers, and driver's license numbers.
Equifax is still figuring out precisely whose data was compromised. While you wait to find out, it's worth taking a few proactive steps to make sure hackers do not misuse your information. Start checking. Visit Equifax's website at equifaxsecurity2017.com and enter your last name and the last six digits of your Social Security number. The site will tell you whether it's likely or not your data has been exposed, and put you on a list to get more information. You can also sign up for one year of credit monitoring provided by Equifax. Watch your statements. Start checking your credit card statements, and pay careful attention to cards you don't use often. The first reports from the breach were that hackers may have been making charges on cards that were not used frequently. Check your credit reports. You can look for suspicious items on your reports, such as new accounts being opened in your name, at all three credit report agencies: Equifax, Experian, and TransUnion. Free annual reports are available at annualcreditreport.com. Freeze your credit. If you suspect you may be a victim of identity theft, you can place a credit freeze on your profile at each of the three credit reporting agencies. This stops anyone from opening new accounts in your name. Keep in mind that you'll have to unfreeze your accounts if you want to apply for new loans or make your credit accessible for things like job applications. File your taxes early. One of the most common ways identity thieves use your information is to try to claim a tax refund with your data. This was the most common scam in 2016, according to the Better Business Bureau. If you file your tax return as early as possible, you shut down this opportunity for any potential thieves.
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Donations are a terrific way to give to a worthy charity, and they also give back in the form of a tax deduction. Unfortunately, charitable donations are under scrutiny by the IRS, and many donations without suitable documentation are rejected. Here are six things you need to do to make sure your charitable donation will be tax-deductible.
Remember, charitable giving can be a valuable tax deduction — but only if you take the right steps. As the year comes to an end, there are several tax-saving ideas you should take into consideration. Use this checklist to ensure you don't miss an opportunity before the year is over.
While every retirement plan has similar early withdrawal penalty exemptions, they are not all the same. Being aware of these slight differences within 401(k) plans can help you get around a 10 percent tax penalty if you withdraw funds from the plan before reaching age 59 1/2. This is the case because a basic rollover of funds into a Traditional IRA is a readily available option to avoid the penalty. You should consider rolling over your 401(k) into an IRA prior to early distribution when:
Remember, by rolling the funds prior to pulling the funds for pre-retirement distribution you are avoiding the early withdrawal penalties, but you must still pay the applicable income tax. Bonus Retirement Plan TipsTwo other quirks in the retirement tax code to be aware of:
The IRS recently announced important figures for 2018, using figures based on the Consumer Price Index published by the Department of Labor. Use these early figures to start developing your tax strategies for next year. Tax Brackets: There are currently seven tax brackets ranging from 0 percent to 39.6 percent. Each of the income brackets rose between 1.9 and 2.1 percent. Personal Exemption: $4,150 in 2018 (up $100 from 2017) Standard Deductions
Other Key Figures:
Remember: These early IRS figures are prior to any potential tax law changes currently under consideration in Washington D.C.
Is storing huge sums of money in a tax-deferred retirement account ever a bad idea? It is when you surpass the annual IRS limits. Whether deliberate or not, the penalties can be detrimental. Here's how overfunding happens and what steps you can take to solve the problem. How Overfunding HappensOverfunding retirement accounts occurs more than you might think. It can be the result of a job change that causes you to take part in two different employer retirement plans. Occasionally people forget they made IRA contributions earlier in the year and do it again later. Others forget that the IRA limit is the total of all accounts, not per account. The rules are complex. Traditional IRAs can't be added to after age 70½, while Roth IRA contributions are subject to income limits. In addition, all contributions are predicated on having earned income. IRAsThe yearly Roth and Traditional IRA contribution limit is $5,500 ($6,500 if age 50 or older). If you exceed this amount, you pay a 6 percent penalty on the overpayment every year until it's corrected, plus a potential 10 percent penalty on the investment proceeds attributed to the overfunded amount. The fix: If the overfunding is found before the filing deadline (plus extensions), you can withdraw the excess and any income earned on the contribution to avoid the 6 percent penalty. You will possibly owe a 10 percent penalty in addition to ordinary income tax on the earnings of the excess contributions if you're under age 59½. Frequently you can apply the contribution to the upcoming year. If your problem is due to age (70½ or older for a Traditional IRA) or income limit (for a Roth IRA), consider recharacterizing your contribution from one IRA type to another. 401(k)sThe rules for correcting an overfunded 401(k) are a slightly more rigid. You have until April 15 to return the funds, period. The nature of the penalty is also different. The excess amount is taxable in the year of the overfunding, and taxable again when withdrawn. So, you could pay the penalty several times on the same amount. And, in certain cases, overfunding a 401(k) could cause it to lose its qualified status.
The fix: If you suspect an overpayment situation, contact your employer right away. Adjust your contribution amount before the end of the year and try to get the problem resolved that way. Recording and reporting business expenses is a missed opportunity for many business owners and employees. Much of what you spend for business purposes is tax-deductible. Knowing whether you can or can't expense a purchase for business purposes can be difficult. Nevertheless, here are a few general guidelines to help. According to the IRS, business expenses must be ordinary and necessary to be deductible. That means they are normal and recognized in your business, as well as helpful and appropriate. You'll need to keep records (such as statements and ledgers) and supporting documents (receipts and invoices) to verify your deductions. Some expenses are subject to extra requirements, as described below. Travel ExpensesTravel expenses pertain to business trips and can include transportation to and from airports, your hotel and business meeting places. They also generally include lodging, meals, tips and other related incidentals.
Entertainment ExpensesEntertainment expenses need to be either directly connected to or related to the conduct of your business. That means that business is the foremost purpose of the activities and it's very probable you'll get income or future business benefits as a result. Expenses from entertainment that aren't considered directly related may still be deductible if they are associated with your business and occur just before or after a significant business conversation.
MileageBusiness use of your personal car is calculated according to your actual business-related expenses, or by multiplying your business mileage by the prescribed IRS rate (53.5 cents per mile in 2017).
Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 66 million Americans will increase 2.0 percent in 2018. The Social Security Administration announced this week a 2 percent boost to monthly Social Security and Supplemental Security Income (SSI) benefits for 2018. The increase is the largest since 2012, and is based on the rise in the Consumer Price Index over the past 12 months ending in September 2017. For those still contributing to Social Security through wages, the potential maximum income subject to Social Security tax increases 1.2 percent this year, to $128,700. What Does It Mean for You?
Social Security & Medicare RatesThe Social Security and Medicare tax rates do not change from 2017 to 2018.
Note: The above tax rates are a combination of 6.20 percent Social Security and 1.45 percent for Medicare. There is also 0.9 percent Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures. Please note that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed individuals pay both halves of the tax.
If you have an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number (SSN), you might need to act now or you'll be unable to file a tax return for 2017. Here is what you need to know. What to Know about ITINsITINs are identification numbers issued by the federal government for people who are not eligible to receive a SSN. An ITIN can be used to file tax returns and is also a form of identification often required by banks, insurance companies, and other institutions. Unfortunately, ITINs are also a source of identity fraud. To fight this, the 2015 PATH Act made considerable modifications to the program. Now many ITINs will expire if not renewed by December 31.
Renew Your ITINDon't wait until the last minute to realize your tax return has been rejected and your refund delayed because of an expired ITIN. To renew, fill out Form W-7 with the required support documents. To learn more, visit the ITIN information page on the IRS website.
Suppose you retire to a new state with warm weather and lower taxes. If you keep a part-time home in your original state or you later decide to return, you could have a tax problem. State tax authorities may argue you never really left, and that you owe them a big tax bill for all the income you earned while away. Here are tips to ensure this does not happen to you. Understand "domicile"Tax residency is usually based on the concept of "domicile." You may have many homes, but you can only have one domicile. A domicile is the place you intend to be your permanent home, and where you intend to return after being away. When these cases go to court, they are often decided by determining a person's intentions regarding their domicile. Consider this hypothetical example: Illinois resident Steve Seeyoulater moved to an apartment to pursue a lucrative job opportunity in Indianapolis, leaving his wife and children behind in Chicago. Steve reasoned that since he spent more than 70 percent of his time in Indiana, he could file his state return there and take advantage of its lower tax rate. The state of Illinois could easily disagree with Steve's assumption, since on the surface Steve intends for his permanent home to remain where his family is, in Illinois. Know the rules before you moveBefore moving, research the residency rules in your home and destination states. They often vary from state to state. Some states have specific guidelines on the number of days its residents must be in the state. Others are less exact. Keep good recordsIf you say you are in a state for a certain period of time, be ready to support your claim. If during an audit your credit card receipts conflict with where you claimed to be at the time, you will have problems. Demonstrate your intentionsIf you're going to file as a resident of a new state but also have a potential tax claim in another state, you have to be able to demonstrate your sincere intent to change your domicile. Here are some things you can do:
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