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5 Times Filing Separately Makes Sense

5 Times Filing Separately Makes Sense

The Internal Revenue Service (IRS) considers you lawfully married if you fall under any of these categories:

1. You were married under state law and live together.
2. You are living together in a common law marriage recognized in the state where you live or where the common law marriage began.
3. You are married and living apart, but not legally divorced.
4. You are separated, but not yet under a final decree of divorce.

If you’re like most couples (95%) it probably just makes common sense to file jointly. But there are times when filing separately may be the better option for you and your loved one. Knowing your options can save you money and here at Gonzalez & Arrambide, Inc. we want to make sure you make the most informed decision. So here are 5 times filing separately might just make more “cents”.

1. Too much money
It’s an unfortunately reality that the more money you make, the more taxes you may pay. This is especially true for couples who may find themselves in a higher tax bracket once they combine incomes. Filing separately in this scenario (especially when spouses make comparable incomes) may keep you from jumping up the next level, but just make sure to be careful. A “married filing separately” status may cut into tax breaks.

2. You or your spouse already owe the IRS
If you or your spouse brought overdue taxes to the relationship (including delinquent federally subsidized school loans) you may have your tax refund applied to that overdue bill. Filing separately can help couples to avoid this situation, but make sure to take into account the overall burden it may cause on your individual tax circumstances.

3. The unfortunate divorce
Life happens and sometimes relationships come to an end. If you are in the process of getting divorced (or even seriously considering) it may be a wise move to file separately. It’s extremely important to realize that a joint return means liability for both parties, and if you’re already in the process of ending your marriage, it’ll probably help you to avoid those post-divorce IRS complications.

4. Expensive medical bills
The IRS only allows you to deduct out-of-pocket medical expenses that exceed 10% of your adjusted gross income. This may be a hard break to catch for those marriages that bring in too much money on a combined income. If those medical bills are taking a good portion of your AGI, it may be to your benefit to file separately to claim more medical deductions to one income.

5. Student loans
Some student loan payments are income-based which means that your AGI can affect those costs. If you decide to file separately, those payments become based on only the borrower’s income, rather than on the couple’s joint income. This may cause you to pay extra on in your end of year tax return, but may save you enough money each month to make up for that fee.

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How To Avoid Paying Uncle Sam More Than You Should

How To Avoid Paying Uncle Sam More Than You Should

Feel like you’re paying too much to Uncle Sam in taxes? Is your yearly tax bill causing you anxiety and frustration?

Having to shell out a couple thousand on your tax return definitely isn’t the most pleasant feeling in the world. Overpaying each paycheck isn’t the answer either. So how do you find the middle ground? Just like everything in life, balance is the key. That balance can and should be found in your W-4 and various tax forms.

Tax Liability

Knowing WHY you might find yourself in a tax-paying situation is the most important way to avoid owing. There are multiple reasons that people may find themselves owing at the end of the tax year including:

  • Having too many withholdings on your W-4. Yes, making a little extra every pay period is a good thing, but just like the saying goes… “too much of a good thing can be bad”.  Make sure you are paying enough taxes on a pay period basis so you don’t end up taxed heavily at the end of the year.
  • Moonlighting is a great way to make a bit of extra cash. Be aware and take that into account so you can save for that bigger tax bill.
  • Self-employment tax can be a bigger issue than income taxes.
  • Forgetting to adjust those withholdings during great moments of change can lead to you owing major money. No more children to claim as dependents?  Increase in your monthly income? Things change and that can lead to owing.

Beyond just recognizing what it is that may be hurting your pocket, learn to utilize some very valuable tools that can be found online to increase your understanding of possible tax liability.

  • A great tool found on the web is the online paycheck calculator. By entering your yearly income, tax allowances, and state, the online paycheck calculator can provide you with a decent estimate of what your tax liability for the year will be.   
  • The IRS also provides a tax-withholding calculator that can be found here. This one is more in-depth than others you might find online and will ask you questions about a variety of financial factors.  Yet, this is still a great way to get an idea of what you may owe or receive on your return.
  • If you’re familiar with a 1040 Form and have a specific tax software you like to use, feel free to create a sample tax return. This one may be more challenging to use as you’re basically recycling last year’s tax laws.  However, if you’re willing to do a little work, you can find out what has changed this tax season and input this year’s financial info to get an accurate picture.

What Next?
So you’ve figured out a possible issue and have strategically used the previously mentioned resources. Here are a couple of solutions that may help to resolve the problem.

  • Not paying enough taxes on your paycheck? The easiest solution is to fill out a new W-4.  Don’t worry.  You do not need permission from your employer to change any of your financial information.  All you have to do is go to the IRS’s website and print out a new W-4 form.   On line 6, which states, “additional amount, if any, you want to be withheld from each paycheck”, fill in the difference that you should be paying each period.  The tax calculator mentioned before should come in handy at this time.  When you’re done, take this form back to your HR department.
  • You can have income tax withheld on your non-wage income. Receiving social security or unemployment benefits?  Complete Form W-4V which can be found on the IRS website, but just remember to send it to the specific payer – NOT the IRS.  You can have 7%, 10%, 15%, or 25% withheld, and even though it might hurt at the moment, it can save you from a major springtime burden.
  • Life can change at a given moment and because of that you need to keep up with reconfiguring your tax withholdings as needed. Getting married, no longer being able to claim dependents, or taking on freelance work?  All this can change your financial situation.  You need to recalculate your income when necessary and make sure to update those W-4’

Gonzalez & Arrambide, Inc. wants to provide you with the best advise possible. We know that taxes can be a bit confusing and daunting. Let us walk you through the steps to ensure you avoid paying outrageous taxes to the IRS. Give us a call at 956.447.9009 and we’ll make sure you make the best decisions. Because with taxes – – every penny counts.

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6 Tips to Help You Fix Your Problem

6 Tips to Help You Fix Your Problem

Tax season can be a scary time…especially if you owe back taxes. On top of mortgage payments, credit card debt, and your regular daily cost of living, any unpaid taxes can be a heavy burden for you to carry. Add to this concern that back taxes can accumulate interest and carry financial liens. So what can you do to find a solution?

1. Stay Calm
Of course unpaid back taxes aren’t necessarily the worst thing in the world, but ignoring the issue isn’t going to help you resolve the problem any quicker. Sure, you won’t be the first (or last) person to owe back taxes, but it’s important enough to try and find a resolution so you can continue on your path to financial freedom. You’re best bet is to stay calm and address the issue.

2. Face the Facts
There’s no such thing as estimating in the tax world. Verification and fact finding is going to be your goal in order to really get the exact amount that you owe. You can call the IRS to find out the total amount, but you should also make sure you’re tracking that figure through your old tax returns (the IRS will run your tax returns even if you don’t but without many of the regular credits you might receive). If the amount provided to you sounds correct, make sure your fill out Form 9465, the Installment Agreement Request.

3. Can’t Pay It Off?
In order to avoid those hefty penalties and that pricey interest, the most sensible thing to do is to pay off the amount owed immediately. However, if paying back taxes is going to be an issue, get in contact with the Taxpayer Advocate Service. This independent organization within the IRS can provide free assistance to those struggling to find a solution to their tax problems. You should also use the irs.gov Online Payment Agreement Application to help set yourself up with a payment plan.

4. Negotiate the Repayment Schedule
Paying a burdensome monthly payment can add to your financial woes. So make sure you negotiate a repayment plan that fits your budget, but bare in mind that depending on the amount you owe, you’ll have between 3 – 6 years to pay it back. Also, interest and penalties will continue to accrue. Still, this can be a better option if the total back taxes due are impractical for you to pay fully at the moment.

5. Beware the Scams
With the internet being a source of information for many people, it can seem like an easy path to Google “tax help” and click on the first website that pops up. Be Very Careful about following this process. Too many “companies” online are running tax scams to trick you into providing them personal and financial information. The IRS keeps a running list on their website for tax scammers/consumer alerts so it’s best to look there before you start emailing your information to anyone. Which leads us to tip number 6.

6. Hire a Professional
Is the IRS bombarding you with to many questions? Can’t find enough answers? Consider acquiring professional help with CPA services like Gonzalez & Arrambide, Inc. and let us help: find you more time, fight for lower monthly payments, or even try an “Offer in Compromise” which can mean settling the debt for less than what is actually owed.

Our experienced CPA’s can provide you the expertise needed to help you gain control of your financial problems. Don’t let back taxes be the reason you can’t move forward in life. Let Gonzalez & Arrambide, Inc. be the support you need at the times you need it most. Give us a call at 956.447.9009.

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