How Obamacare Impacts Your Taxes

Obamacare affordable care act taxes  

How Does Obamacare, also known as the Affordable Care Act (ACA) impact your taxes? Why does healthcare have anything to do with taxes? We give you the scoop in this short and sweet article.

From a tax perspective, the headline for Obamacare is that everyone must have health insurance, or pay a fine that is enforced when they file their federal tax return. Here are five key things that describe the Affordable Care Act (ACA) in more detail.

 

1. Fines start in tax year 2014, on tax returns that are typically filed in 2015. The fine amount for 2014 is the higher of these two amounts:

  • 1% of your yearly household income. Only the amount of income above the tax filing threshold, $10,150 for an individual, is used to calculate the penalty.
  • $95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.

 

2. The fines increase significantly over time. If you don’t have coverage in 2015, you’ll pay the higher of these two amounts when you file taxes in 2016:

  • $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.
  • 2% of your yearly household income. Only the amount of income above the tax filing threshold, $10,300 for an individual, is used to calculate the penalty.

In 2016 it’s 2.5% of income or $695 per person. After that it's adjusted for inflation.

 

3. There are exceptions. You are exempt from the fine under certain hardship conditions. See a full list of the conditions at HealthCare.gov.

 

4. You may be eligible for a tax credit for some of the health insurance premiums you paid. Use this calculator to determine if you’re eligible and the amount of the credit.

 

5. You can get coverage from your employer (if they offer it), directly from a private provider, or via the Marketplace at Healthcare.gov. The deadline for Open Enrollment for 2015 is February 15th.

 

File Your Taxes

 

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IRS E-file Opened Today

IRS e-file

IRS e-File Opened Today

IRS e-file opened today, January 20, 2015. If you've already filed with a software provider, they will transmit it to IRS on a first in, first out basis. IRS also began processing paper returns today.

Here are the top five reasons to e-File from the IRS:

1. Accurate and easy. IRS e-file is the best way to file an accurate tax return. The tax software that you use to e-file helps avoid mistakes by doing the math for you. It guides you every step of the way as you do your taxes. IRS e-file can also help with the new health care law tax provisions. The bottom line is that e-file is much easier than doing your taxes by hand and mailing paper tax forms.

2. Convenient options. You can buy commercial tax software to e-file or ask your tax preparer to e-file your tax return. You can also e-file through IRS Free File, the free tax preparation and e-file program available only on IRS.gov. You may qualify to have your taxes filed through the IRS Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs. In general, VITA offers free tax preparation and e-file if you earned $53,000 or less. TCE offers help primarily to people who are age 60 or older.

3. Safe and secure. IRS e-file meets strict security guidelines. It uses secure encryption technology to protect your tax return. The IRS has safely and securely processed more than 1.3 billion e-filed tax returns from individuals since the program began.

4. Faster refunds. In most cases you get your refund faster when you e-file. That’s because there is nothing to mail and your return is virtually free of mistakes. The fastest way to get your refund is to combine e-file with direct deposit into your bank account. The IRS issues most refunds in less than 21 days.

5. Payment flexibility. If you owe taxes, you can e-file early and set up an automatic payment on any day until the April 15 due date. You can pay electronically from your bank account. You can also pay by check, money order, debit or credit card. Visit IRS.gov/payments for more information.

 

Tax & Financial News of The Week

Happy Friday! Things are very busy here at Common Form headquarters as we get ready for a busy tax season. W-2s will start being mailed out very soon and many employers make electronic copies available from the same website you view your paycheck stubs. IRS begins processing returns on Tuesday January 20, 2015. The next 13.5 weeks are going to be crazy. Hold on tight! Here's a quick run down of the tax and financial articles that caught my eye this week. Feedback is welcomed!

 

Common Form invited to 2015 SXSW Accelerator.  Quoting the article "More than five hundred companies submitted their web-based products to the seventh annual SXSW Accelerator presented by Oracle. Competition was tough and we're extremely grateful for all of the great submissions we received this year. Congratulations to the Interactive finalists who will be showcasing their products on Saturday, March 14 and Sunday, March 15 at the Hilton Downtown Austin."

 

IRS Free File Launched Today.  The Internal Revenue Service and the Free File Alliance today announced the launch of Free File, which makes brand-name tax software products and electronic filing available to some taxpayers for free

 

A Student’s Guide To Filing Taxes.  Lynnette Khalfani-Cox, The Money Coach, and I provide a guide to filing taxes for college students. It covers the deductions and credits that students maybe eligible for as well as college savings plans and student loans.

 

Have a great weekend!

Bill

 

Tax & Financial News of The Week

Happy New Year!  This is a week too late, but I decided to take last week off from writing this update.  Hopefully, you missed it!  Tax season is ramping up quickly, W-2s will be getting mailed out shortly and we're prepared for a busy year here at Common Form.  Since we're focusing on preparing taxes, I'll do a little less writing about them this week.  I'll just highlight three things that caught my attention recently:IRS announces launch date of e-File. On December 29, the Internal Revenue Service announced it anticipates opening the 2015 filing season as scheduled in January. The IRS will begin accepting tax returns electronically on January 20, 2015. You can file your taxes now with almost all tax software providers, including Common Form, and they will be stockpiled until IRS opens. 5 Takeaways from the December Jobs Report (WSJ).  The U.S. labor markets ended 2014 on a strong note as the top-line December numbers in job growth and unemployment rate beat expectations.  Underneath the surface, however, are signs that slack still exists in the labor markets. This Wall Street Journal article describes five key takeaways from the December jobs report, good and bad. Hidden TurboTax charges have users screaming (CBS News).  TurboTax users are fuming in online reviews that the popular software has added a series of charges to use certain tax forms. And on Tuesday a consumer advocate amplified the complaints by slamming the company for not being more upfront about the new charges.

How To File Taxes - A Beginner's Guide

how-to-file-taxes.jpg

Updated for Tax Year 2015 (for returns filed in 2016)

If you're new to taxes they can be quite intimidating. Confusing language. Fear of getting in trouble with the IRS. Math. Don't worry, it's really not that hard. In our Beginner's Guide To Taxes we'll tell you everything you need to know to file your taxes and get a nice refund. Fast.

This guide has 4 sections:

1. Do I have to file?

2. What paperwork and information do I need?

3. How do I prepare and file my tax return?

4. How do I get my refund?

1. Do I have to file?

The short answer – if you made any money, you should file a tax return even if you’re not required to.  Why?  To get a refund!  Most likely income tax is being withheld from your paycheck.  Often too much.  File a return and get some of your money back!  Even if you only worked for a month and only made a few bucks, file a tax return. Besides the money in your pocket, better safe than sorry. The last thing you want is to get in hot water with the IRS.

You may also be eligible for valuable tax credits like the Earned Income Credit, which can give you a refund even if you didn't have taxes withheld from your paycheck.  Still not convinced? Read more about filing requirements.

2. What paperwork and information do I need?

Besides basic information about yourself (name, address, date of birth, etc.), your spouse, and your kids, you'll receive tax forms in the mail from your employer and any banks you do business with. The most common of these forms are:

  • A W-2 from your job that reports the salary, wages, and tips you made. Your employer must mail your W-2 by February 1, 2016. Many employers offer electronic versions via the same website you can view your paycheck stubs. If you worked more than one job during the year, you’ll receive a W-2 for each one.
  • If you received any unemployment income, you’ll get a 1099-G from the state that paid you.
  • If you made $10 or more in interest from a checking or savings account, your bank will send you Form 1099-INT, otherwise you can use online banking or your account statements to determine the interest you made.

There are less common forms you may receive as well. They'll be mailed by early February at the latest. Don't worry, we'll remind you about this stuff while you're doing your taxes, so get started with confidence whenever you're ready.

3. How do I prepare and file my tax return?

You have three options:

Pen and paper

The old school way to do your taxes is with pen and paper. It takes a while and some tax knowledge, but you can’t beat the price. Determine the forms and schedules you need, download them from the IRS, print them, and get cranking. Once you're done, mail your completed return to the IRS along with your W-2 and a check (if you owe additional taxes).

Pay someone else to do it for you

You can hire a CPA, EA, or go to a tax store and pay someone to do it for you. It’s much less effort on your part, but it isn't cheap. Prices start at around $100, most people pay $200 - $300. If you have complicated finances it can cost even more. They send your return and the needed paperwork to Uncle Sam for you.

Do It Yourself With Your Phone or Computer

Online tax software has revolutionized the tax preparation industry. Today's software has an "interview" format - it asks you a series of questions and creates the right tax forms based on your answers. It does all the math for you, puts the numbers in the right places, and checks for mistakes, ensuring you get the biggest refund possible. Once you're done, your return is filed electronically with IRS e-file.

We believe TaxAct is the best software on the market. Try it for free and don't pay until you're happy. 

4. How do I get my refund?

Most taxpayers get a refund. A nice one, too. The average is around $2,700! As you're filing your return you'll chose to either have IRS cut you a check or direct deposit your refund into your bank account. Direct deposit is significantly faster, so we recommend it.

If you owe the IRS additional taxes, you can write them a check, or they can withdraw the money from your bank account electronically.

That's all there is to it. It's really not that bad. If you can get online, you can do your taxes yourself with software. And if you're reading this, you're online so...

 

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The Top 10 Accounting Schools in the West

  As a tax software company, we are very interested in the education of the next generation of accounting & finance professionals. To help prospective students chose the college that’s best for them, we crunched the numbers and compiled a list of the Top 10 Accounting Schools in the West. If you're looking for schools in other parts of the country, check out our Top 10 Accounting Schools on the East Coast and The Top 10 Accounting Schools in the Midwest.

 

The criteria we used to evaluate these colleges include:

  • Job placement rates and average starting salary for graduates
  • Awards and recognition
  • Faculty and staff
  • Funds generated and allocated for research

 

Without further ado, here are the Top 10 Accounting Schools in the West:

 

 

10. Stanford

 

stanford top 10 accounting schools

 

 

 

 

 

 

 

Stanford’s Graduate School of Business (GSB) is consistently ranked as one of the top programs in the United States. Among American MBA programs, Stanford has the lowest acceptance rate, 6.5%. If you want to be an entrepreneur, there is no better program than Stanford for academic excellence, networking, and proximity to Silicon Valley. Their accounting curriculum is extensive, including a PhD program.

 

 

9. University of Arizona

arizona top 10 accounting schools

 

 

 

 

 

 

 

 

 

 

The Eller College of Management at The University of Arizona offers both graduate and undergrad degrees in accounting. The college is also home to top-ranked entrepreneurship, MIS, MBA, and doctoral programs, and leads the nation’s business schools in generating grant funds for research. This well rounded program comes in at number 9 on our list.

 

 

8. University of California - San Diego

 

 

UCSD top 10 accounting schools

 

 

 

 

 

 

UCSD’s Rady School of Management is well known throughout the country for both its MBA and undergraduate programs. Their staff is anchored by Dr. Harry M. Markowitz, winner of the Noble Memorial Prize in Economic Science. Their undergraduate accounting program positions students well to earn their CPA as quickly as possible without sacrificing quality curriculum.

 

 

7. University of Oregon

 

 

Oregon top 10 accounting schools

 

 

 

 

 

 

 

The University of Oregon's Master of Accounting program at the Lundquist College of Business is very prestigious. Students are well prepared to earn their CPA license and their job placement rates and average starting salaries stack up with any school in the country. And who wouldn't want to spend time in beautiful Eugene?

 

 

6. University of California, Los Angeles

UCLA top 10 accounting schools

 

 

 

 

 

 

 

 

 

 

 

UCLA Anderson School of Management is an extremely renowned program. In 2009, the UCLA Finance PhD Program was ranked number 1 in the world. This research study ranked them as the top program at enhancing the publication record of its students in the top three finance journals.  They also offer a Master’s degree in Financial Engineering.

 

 

5. University of Washington

 

Washington top 10 accounting schools

 

 

 

 

 

 

 

 

 

 

The University of Washington’s Foster School of Business Accounting Department contributes more to financial accounting research than any other school. In addition to earning your CPA, students can continue their education with a Master of Professional Accounting or a PhD in Accounting. UDub comes is # 5 on our list.

 

 

4. University of California, Berkeley

 

California top 10 accounting schools

 

 

 

 

 

 

 

 

 

 

The Haas School of Business is an outstanding school for both graduate and undergraduate students. Through the Haas@Work program, students are assigned to projects at both local and global companies, learning through direct experience. Although Cal does not offer a major in Accounting, they offer a full curriculum of Accounting courses to prepare students for careers in Accounting and becoming a CPA. The Wall Street Journal ranked as the eighth best accounting school in the country in 2010.

 

 

3. University of Nevada Las Vegas

UNLV top 10 accounting schools

 

 

 

 

 

 

 

 

 

 

 

 

UNLV’s Lee Business School is second to none when it comes to accounting and they proved it by winning first place at the American Institute of Certified Public Accountants (AICPA) Accounting Competition on Dec. 19, 2014 in Washington, D.C. They prove their financial acumen and learn real world investing by managing a $100K fund known as the Rebel Investment Group (RIG). It's hard to rank them third, and all of the schools at the top of this list have truly exceptional programs.

 

 

2. University of Southern California

 

 

USC top 10 accounting schools

 

 

 

 

 

 

 

USC’s Leventhal School of Accounting is one of the best in the west. Part of USC’s Marshall School of Business, their undergraduate accounting program is one of the most exclusive in the country. Accounting has been a critical part of the School of Business at USC since its inception in 1920 and it has a long-standing tradition of academic excellence. They came in a very close second on our list.

 

 

1. Bringham Young University

 

BYU top 10 accounting schools

 

 

 

 

 

 

 

 

 

BYU’s Marriott School of Business has earned numerous accolades over the years. Their professors have won national awards for research and recently the Big Four accounting firm Ernst & Young awarded the school with a $500,000 grant to promote international learning and experience. The Wall Street Journal ranked BYU as the number 1 accounting school in the country in 2010 and we don't see anything to indicate they've fallen off.

 

IRS e-File Opens January 20, 2015

IRS e-File Opens January 20, 2015.

Following the passage of the extenders legislation, the Internal Revenue Service announced today it anticipates opening the 2015 filing season as scheduled in January. The IRS will begin accepting tax returns electronically on January 20, 2015. Paper tax returns will begin processing at the same time.

The decision follows Congress renewing a number of "extender" provisions of the tax law that expired at the end of 2013. These provisions were renewed by Congress through the end of 2014. The final legislation was signed into law Dec 19, 2014.

You can file your taxes before January 20th with most tax software providers and they will be "stockpiled" until IRS is open. When e-file is ready, returns will be submitted to IRS in the order they were received.

Tax & Financial News of The Week

Merry Christmas, Happy Hanukkah, and an early Happy New Year! I hope everyone is enjoying the holiday season with family and friends and is getting some rest and relaxation in. I'm going to grab some R&R myself, so I will keep this week's edition brief. Without further ado, here's the weekly summary of financial stores and issues that matter to me.

 

A Christmas Day Look At Santa's Tax Bill. In this fun and light-hearted article, Kelly Phillips Erb (@taxgirl, writer for @Forbes) uses Santa to explain tax concepts like residency, charitable donations, and payroll taxes.

 

20 things you should do with your money before 2015. The new year is right around the corner, and right now, many people are thinking about their 2015 resolutions. You might even include a few money resolutions on your list. But you don’t have to wait until January 1 to get your personal finances on track; there are plenty of smart things to do with your money before the end of the year.

 

How Affordable Care Act Rules Affect Your Taxes. This is the first time taxpayers will have to report their health care status on their tax returns. The vast majority of taxpayers will simply have to check a box stating they were insured. But some uninsured people will be required to pay a penalty, while others will be exempt because of a hardship or some other reason.

 

Happy Holidays!

Bill

Tax & Financial News of The Week

Happy Friday! As a former boss used to say, "only two more days in the work week. Just kidding. Sort of."  It's been a crazy week in the news. Apparently North Korea now controls what movies we can watch. I'm glad I still have Team America on plastic (DVD), I think I'll throw it on this weekend. I'm sure I won't be the only one!  

There's a lot of financial news, too. Here's my weekly summary of financial stores and issues that matter to me.  Enjoy!

 

Forbes.com - 7 Tax Saving Steps to Take by End of Year. The Financial Finesse team shares seven great tips to do before the end of the year to maximize your refund in 2015.

 

Wall Street Journal - Picking Your Workplace Battles. We were flattered to be quoted in this great article by Sue Shellenbarger. Sue explores how to pick your battles and how to most effectively resolve workplace conflict when it inevitably happens.

 

Yahoo Finance - Congress Passes Tax Increase Prevention Act of 2014. Also know as "the extenders," the Act extends a host of previously expired tax breaks for individuals and businesses through year-end, and also provides for the establishment of a new type of tax-advantaged savings program to help in meeting the financial needs of disabled individuals.

 

Forbes.com - 20 Really Stupid Things In The U.S. Tax Code. Robert Wood's candid and humorous take on some of the absurdities of the U.S. tax code.

 

MarketWatch - U.S. stock gains led by energy, materials.  The last couple of weeks have been very volatile for U.S.stock markets.  Last week was the worst for the DJIA since November 2011, but the markets rallied back this week.

 

Common Form Announces Scholarship for Finance or Accounting Students. Common Form is thrilled to announce that we’re offering a scholarship to one of the top finance or accounting students in the country! We’re excited to give back in this small way, and of course as a tax software company we have a vested interested in helping future finance professionals maximize their potential and join this extremely important industry.

 

Happy Holidays!

Bill

...

Earned Income Credit (EIC) Explained

Earned Income Credit The Earned Income Credit (EIC), also known as the Earned Income Tax Credit (EITC), is designed to help you keep more of your hard earned money.

 

It is a refundable tax credit, meaning you could qualify for a refund even if you did not have any income tax withheld from your paychecks. This article explains who is eligible for it, how much its worth, and how to claim it.

 

Am I Eligible for the Earned Income Credit?

To qualify for the EIC, you must have earned income from employment, self-employment, or another source and meet specific rules. Your income has to be within certain limits and there's a cap on how much investment income you can make.

You're eligible if:

  • You earned income from a job, your own business, or certain disability benefits. Unemployment income does not count as earned income, so if you only made unemployment income in 2014, you are not eligible to claim the credit.
  • You did NOT receive more than $3,350 in interest and investment income. Examples of investment income include interest, dividends, and profit from selling stocks.
  • Your filing status is Single or Married Filing Jointly. If you're Married Filing Separately, you are NOT eligible.
  • You, your spouse and children, if applicable, all have Social Security numbers.
  • You and your spouse can NOT claimed as a dependent or qualifying child on someone else's return.
  • You either have at least one qualifying child OR either you or your spouse are between the ages of 25 and 64.
    • If you have a qualifying child, you and your spouse's age don't matter
    • If you don't have a qualifying child, you and your spouse's age do matter. One of you needs to be at least age 25 but under age 65 on December 31, 2014.
  • You are a citizen or resident of the United States.

There are some other rare circumstances and edge cases, but this covers the majority of situations.

 

What is a Qualifying Child?

A qualifying child is:

  • Your son, daughter, stepchild, adopted child, or their descendant (such as a grandchild).
  • Your brother, sister, stepbrother, stepsister or or their descendant.
  • Your foster child, placed with you by an authorized agency or court order.
  • Age 18 or younger on December 31, 2014, unless he or she is a full-time student, in which case the student must be 23 or younger. A person who is permanently and totally disabled at any time during the year qualifies, no matter how old.
  • A resident with you in the United States for more than half of the year.

 

How Much is the Credit Worth?

The amount of the credit depends on a number of things - the amount of income you made. your marital status, and the number of qualifying children you have. See the table below for the amounts for Tax Year 2014 (for taxes filed in 2015).

 

Qualifying Children Earned Income and AGI Must be Less Than Maximum Credit
3 or more qualifying children $46,997 ($52,427 if Married Filing Jointly) $6,143
2  qualifying children $43,756 ($49,186 if Married Filing Jointly) $5,460
1 qualifying child $38,511 ($43,941 if Married Filing Jointly) $3,305
0 qualifying children $14,590 ($20,020 if Married Filing Jointly) $496

 

 

How Do I Claim the Earned Income Credit

The only way to claim the EIC is to file a tax return, even if you do not owe any tax and are not required to file. As I mentioned earlier, the EIC is a refundable tax credit, meaning you could qualify for a refund even if you have not paid any income tax. Common Form supports the EIC, so file your taxes with us to claim this valuable credit.

 

Do Your Taxes

 

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Founders Quoted in the Wall Street Journal

Bill Hendricks and Charles Logston, Co-Founders of Common Form share their thoughts on dealing with workplace conflict with Sue Shellenbarger of The Wall Street Journal.  The article titled To Fight, or Not to Fight ran in the paper edition and on WSJ.com on December 17, 2014.  

Quoting the article:

Bill Hendricks and Charles Logston avoided dealing with mounting tensions last January about when to launch a new product, an app for filing simple federal tax forms.Mr. Logston, chief technical officer and co-founder of Common Form Inc., San Diego, wanted to market the app early in the tax season. Mr. Hendricks, chief executive officer and also a co-founder, wanted to wait for Internal Revenue Service approval for using the app for e-filing. Mr. Hendricks says both were working as hard and fast as they could, and “we were sensitive about rocking the boat too much.”

 

When they did confront each other after a few weeks of tension, it was tough to keep their frustrations in check, and the conversation was more confrontational than they had planned. They agreed on a compromise and launched the app successfully just a couple of weeks later than planned, but both say they wish they had raised the issue sooner.Mr. Hendricks says, “It only becomes harder to deal with, the longer you wait.” Such disputes are common. More than 4 out of 5 corporate employees have conflicts with other employees over priorities, misunderstandings, resources or personality differences, and half of them say they turn out less work as a result, according to a recent survey of 150 employees by Harris Poll for AtTask, a Lehi, Utah, maker of project-management applications.

Read the full article, To Fight, or Not to Fight on WSJ.com.

 

Tax & Financial News of The Week

Hello and welcome to the first of a series of weekly posts summarizing the most interesting tax and financial news of the week.  I'll focus on issues that matter to me and stories that pertain to taxes, personal finance, and the economy.  

Wall Street Journal - U.S. Wealth Is Near a Record, Yet Racial Gap Has Widened Since Recession.  Despite a strong economy driven by the stock market, the gap in median wealth between white households and black households has increased significantly since 2010.

 

CNN Money - Congress moves one step closer to allowing pension cuts.  Over a million retired and current truck drivers, construction workers and other union workers could see their pension benefits cut if the Senate passes a controversial proposal.

 

Bloomberg Graphic Report - America Is Shaking Off Its Addiction to Oil.  This great visual report shows our oil production, oil consumption, gas prices and more over time and highlights trends indicating we maybe finally breaking our addition to oil.

 

TechCrunch - Lending Club IPOs for $5.4 Billion.  Lending Club, a peer to peer lending platform, made it's initial public offering on Thursday December 11.  It is the largest IPO for a US tech company this year and shows how much upside there is for FinTech investors and entrepreneurs.

 

Forbes - IRS Announces 2015 Standard Mileage Rates.  On December 10, IRS announced the standard mileage rate for federal income taxes.  These rates determine how much you can deduct from your taxes for miles driven for different purposes.  They go into effect for Tax Year 2015 (filed in calendar year 2016).

 

Have a great weekend!

Bill

 

Interview with Lynnette Khalfani-Cox, The Money Coach

Money Coach Today I spoke with Lynnette Khalfani-Cox, The Money Coach, to learn about her journey as an entrepreneur to seek her expert financial advice for our customers and readers.  I know you’ll enjoy the interview!

 

Bill Hendricks:   How long have you been The Money Coach, giving people financial advice?

Lynnette Khalfani-Cox:  I’ve been a financial news journalist for over 20 years.  I struck out on my own as The Money Coach in 2003.

 

BH:  What was your motivation to become an entrepreneur?

LKC:  It started out of necessity.  In 2003 I was a journalist working for Dow Jones (I was a Wall Street Journal reporter for CNBC).  I was downsized along with 200 other people.  The media landscape was rapidly changing then, especially for print companies.  Advertising revenue was down and companies we’re struggling to make a profit.  I loved my career and wanted to continue it.  My last day on the air for CNBC was March 1, 2003 and I started my own company later than same month.  It’s been fun and I haven’t looked back since!

 

BH:  That’s a very inspiring story!  What is your proudest professional accomplishment over the past 11 years?

LKC:  I am most proud of two things:

First, for making it on to the New York Times Best Sellers list for my book Zero Debt: The Ultimate Guide to Financial Freedom.  Not for the reasons you would think, though.  Sure, the financial outcome was great, but I am most proud of it from an entrepreneurial perspective.  I self-published the book.  Now this is common place, but back then that was rare and difficult to do.  People told us (my husband and business partner, Earl) that we’d never get the reviews and publicity required for the book to succeed.  That made us want to succeed that much more, to prove them wrong.  So I got my first book, Investing Success, reviewed by USA Today, which led to more media. With Zero Debt, I appeared on Dr. Phil and the Jane Pauley show the same week.  That catapulted us onto the Best Sellers list.  That helped validate our belief that we could be successful entrepreneurs.

Secondly, I am very proud of the fact that we’ve sustained our business this long.  You know the statistics, 90% of new companies fail.  We’ve built a strong brand and a good business.

 

BH:  I’d be very proud of those, too.  What are the toughest challenges you've faced along the way?

LKC:  As you know, all business are cyclical and ever changing.  The media business is particularly fluid these days.  The strategies and tactics that worked few years don’t work now.  Clients come and go.   New platforms seem to pop every day.  You have to make peace with the instability and adapt to survive.

 

BH:  What's the most important advice you can give to millennials and people who aren't used to thinking about their finances?  

LKC:   Don’t try to “keep up with the Joneses.”  It’s an easy trap to fall into these days given how much information we share with each other.  Your friends are probably posting pictures of their vacations, expensive meals, and new cars.  Resist the urge spend more than you earn and try to be as anti-materialistic as possible.  Save at least 10% of your salary.  If you can figure out how to live within your means, it will impact your life in so many positive ways beyond money.  You’ll have more flexibility with your career, and you’ll be healthier and happier.

 

BH:  College is becoming increasingly expensive.  What advice can you give students and their parents to manage the cost?

LKC:  Don’t forget about the hidden costs of college.  People see the upfront costs (tuition, fees, room and board).  But they don’t see things like fraternity/sorority dues, studying abroad, or even parking.  It can cost up to $1,000 a year just to park a car on some campuses!  Not to mention gas, maintenance, and so on.  I write about this and more in my new book, College Secrets: How to Save Money, Cut College Costs and Graduate Debt Free.

 

BH:  What can we expect from you in 2015?

LKC:  I’ll be doing a major push for the College Secrets book, touring universities and teaching people how to navigate the costs of higher education. We’ll be simultaneously promoting the companion book in the series, called College Secrets for Teens: Money-Saving Ideas for the Pre-College Years. I’ll also be doing lots of TV and speaking engagements.  January and February are usually my busiest months.  People make financially related New Year’s resolutions and often have “debt hangover” from the holidays, and in general people are more interested in finances earlier in the year than later.

 

BH:  Thanks Lynnette!

 

Lynnette Khalfani-Cox, The Money Coach, is a personal finance expert, television and radio personality, and the author of numerous books, including the New York Times bestseller Zero Debt: The Ultimate Guide to Financial Freedom.  Her website is http://askthemoneycoach.com and you can follow her on Twitter @themoneycoach.

 

What is the 1040EZ - 1040EZ Form Explained

1040EZ.jpg

What is the 1040EZ?  The 1040EZ form (aka the EZ form) is the simplest and shortest form you can use to file your federal income taxes.  Each year over 20 million people file this form, around 1 in every 6.5 federal tax returns filed.  This article explains who can use it, the information required to fill it out, and options for filing it with the IRS.

Who Can Use the 1040EZ?

If you make less than $100K per year, don’t have any dependents, and don’t have a mortgage, then you’re probably eligible to file the 1040EZ.  It covers salary and wages from your job (W-2), interest from your bank account (1099-INT), and unemployment income (1099-G).  If you're an independent contractor (1099-MISC), have dividend income (1099-DIV), or investment income (1099-B), then you're not eligible to file a 1040EZ.  

What Information is Required?

There are four main sections of the form.  Personal information, income you made, taxes you already paid, and your tax refund or balance due.

Personal Information     

Just the facts, ma'am.  Name, address, date of birth and social security number.  Easy breezy.  If you're married, you enter the same information for your spouse.  Since you can't claim dependents with the 1040EZ, there is no place to record their information.  If you're over age 65, you can't file the EZ form unfortunately.

Income You Made

As noted earlier, the 1040EZ covers the most common types of income - wages, salaries, and tips from your employer (reported on Form W-2), interest income from banks and other financial institutions (reported on Form 1099-INT), and unemployment income (reported on Form 1099-G).  If you received any of these types of income, these forms will be sent to you by the end of January.  For more information about the timing of Tax Year 2014 (filed in 2015), read this article.

Taxes You Paid

Each of the forms you receive will report the taxes you've already paid, or had withheld.  Typically taxes are withheld from each paycheck you receive, so your W-2 will list the total amount of tax you've already paid via your job in box 2.  It is unusual to have taxes withheld from bank interest or unemployment income, but if they were they will be reported on the 1099-INT or 1099-G you receive.

Refund or Balance Due

This is the best part!  Most people get a refund, and this is especially true for 1040EZ filers.  Your refund or balance due is the calculated by comparing the amount of tax you've already paid vs. what you actually owe.  If you're eligible for the earned income credit, it will increase your refund.

Filing Options

You have 3 options for filing your taxes.

Pencil and paper

The old school way to do your taxes is with pencil and paper. It takes a while and a little math, but you can’t beat the price (it’s free). Download the form from the IRS, grab a calculator, and read the 42 pages of instructions... Wait, never mind.  Research shows it takes over 3 and half hours on average to do it by hand.

Pay someone else to do it for you

You can hire a CPA or go to a tax store and pay someone to do it for you. It’s certainly less effort on your part, but you have to pay for it.  Around $100, if not more.

Do It Yourself With Your Phone or Computer

There are lots of mobile, online, and software options, many of them quite good.  We believe Common Form is the best option for 1040EZ filers and hope you'll give us the chance to earn your business. If you know you're not eligible to file a 1040EZ, we recommend TaxAct. They handle just about any tax situation you can think of.

Do Your Taxes

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When can I file my 2014 taxes?

tax-day-cropped.jpg

 

Update: Click here to see 2016 dates

 

When can I file my 2014 taxes?  The short answer is - now!  File your taxes today.  More details and a calendar of important dates and deadlines for filing your 2014 taxes is below.

January 5, 2015

Common Form opened for business and began accepting 2014 tax returns.  You can do your taxes and we will hold your return until IRS opens.

January 20, 2015

IRS e-file goes live and begins process returns.  If you file your taxes before Jan 20th, we'll transmit your return as soon as IRS is ready to process it.

February 2, 2015

Deadline for your employer to mail you your W-2.  This is a mailing deadline, so if your company waits to the last minute you may not get it until early February.  However, many employers offer electronic versions via the same website you can view your pay check stubs.  If you received unemployment, this is also the deadline for the state(s) that paid you to issue you a 1099-G.

Deadline for banks to supply you with a 1099-INT reporting bank account interest you made.  Note that banks are only required to issue a 1099-INT if you made at least $10 of interest during the year, however you are still required to report it even if they don't send you one.  If you made less than $10, use your bank statements or online banking to determine the amount of interest you made.

April 15, 2015

Also known as “tax day.”  Most people believe this is the deadline to file your 2014 income taxes.  That’s close enough.  It’s actually a payment deadline rather than a filing deadline.  If you owe IRS additional taxes, you must pay and file them to avoid fees and penalties.  However, if you’re getting a refund, this deadline doesn’t apply to you.  You can file for up to 3 years with no late fees or penalties. Read more about the deadline or file your taxes now.

If you want to, you could file an extension.  But extensions are fool’s gold – you still have to pay at least 90% of taxes owed and do almost as much work as filing your return.

October 15, 2015

If you filed an extension and owe additional taxes, this is the deadline to file your return and pay any remaining taxes you owe.

 

Ultimate Guide to Student Taxes

Updated for Tax Year 2015 (for returns filed in 2016)

College is awesome, right?  For most of us, it’s the first time we tasted freedom.  The freedom to do whatever, whenever you want.

The downside is that you have more responsibility, too, especially on financial matters.  You get bombarded with credit card offers designed to put you in debt and keep you there.  You may have to work to support yourself, at least partially.  And your parents may no longer be doing your taxes for you.

If you’re new to taxes they can be overwhelming.  Especially for college students, given the special rules and benefits you may be eligible for.  Don’t worry, we’ve got you covered with this Ultimate Guide to Student Taxes.  And, unless you’ve got some offshore bank account in the Cayman Islands, it’s really not that complicated.

This guide covers the following topics:

1. Do you need to file a tax return?

2. Determine if you can be claimed as a dependent by your parents

3. Student Tax Credits

4. Form 1098-T

5. Scholarships and Grants

6. Tax-free Savings Accounts

7. Student Loan Interest (Form 1098-E)

1. Do you need to file a tax return?

The short answer – if you earned any income in 2014, you should file in 2015 even if you’re not required to.  Why?  To get a refund!  Most likely Uncle Sam withheld taxes from your paychecks.  Usually he takes too much.  File a return and get some of your money back!  You may also be eligible for valuable tax credits.  Read more about filing requirements.

2. Determine if you can be claimed as a dependent by your parents.

There is a reason almost all tax software asks if you can be claimed as a dependent early on.  It impacts your taxes in important ways, especially for students.  Generally, it determines who receives any education related tax benefits you may be eligible for.  If your parents can claim you as a dependent, then they receive the benefits.  Unfortunately, you only get these benefits if no one can claim you as a dependent on their return.

How do you know if someone else can claim you as a dependent?  Most full-time students can be claimed by their parents (or other relative).  The main reasons you can NOT be claimed are:

  • You are 24 years or older at the end of 2015 (or 19 or older if not a student), or
  • You provided more than half of your own financial support throughout the year. Scholarships and grants received by the student do NOT count as the student providing their own support.

That’s fair though, right?  If your parents are supporting you financially, they should get the write-offs from Uncle Sam.  At least that’s the way the IRS sees it.

If you like reading about taxes (ha!), we go deeper into dependents in this post.  But there’s no need, TaxAct will help you determine if you can claimed as a dependent in a matter of seconds.

 3. Tax Credits (American Opportunity Credit and the Lifetime Learning Credit)

You or your parents may be eligible for one of these two tax credits.  You may only claim one, however, not both.

If your parents claim you as a dependent, then they're eligible for one of these credits. If no one claims you as a dependent, then you maybe eligible for them.

The American Opportunity Credit (formerly The Hope Credit)

This the more valuable of the two credits and should be claimed if possible.  To be eligible for it, you must be in the first four years of post-secondary school education (college, vocational school, etc.).  Students taking a “victory lap” aren’t eligible and should look at the Lifetime Learning Credit instead.  Here’s the rest of the 411:

  • You can claim up to $2,500 per eligible student, per year.
  • The credit covers 100% of the first $2,000 of qualified tuition, required fees, and qualified expenses, plus 25% of the next $2,000.
  • 40% of the credit is refundable, so you may receive $1,000 per eligible student as a tax refund even if you owe no tax.
  • Each student for which you claim the credit must have been enrolled at least half time for at least one academic period which began during the tax year.
  • Qualified expenses include tuition and required fees, books, supplies, equipment, and other required course materials (but not room and board).
  • If your (or your parents) income exceeds $80,000 ($160,000 if married filing jointly), the credit will be gradually reduced. Income has to be under $90,000 ($180,000 if married filing jointly) to receive a credit.
  • Students with a felony drug conviction are not eligible for this credit.

Lifetime Learning Credit

If you do not qualify for the American Opportunity Credit, you may still be able to claim the Lifetime Learning Credit.  Deets:

  • It applies to undergraduate, graduate, and professional degree courses, and even to post-graduate courses that help improve your job skills.
  • The credit is available for any and all years of post-secondary education, and also for adult and continuing education courses. There is no limit on how many years you can claim the credit.
  • There is no minimum enrollment requirement.
  • The amount of your credit will be 20% of the first $10,000 of combined post-secondary tuition and fees you paid, totaling no more than $2,000 (per year, not per student).
  • Qualified expenses include tuition, fees, books, supplies, equipment, and other course materials as long as they are required (room and board is not included).
  • The Lifetime Learning Credit is not refundable, so it will not be paid to you in a refund--it simply decreases your tax liability.
  • For 2015, the limit on modified adjusted gross income is $62,000 ($124,000 if married filing jointly).

4. Form 1098-T, Tuition Statement

Form 1098-T is the tax form your school will send you that documents the qualified tuition and other expenses you paid during the year.  The data from this form will help us determine if you (or your parents) are eligible for the American Opportunity Credit or Lifetime Learning Credit.

It's also used to determine if you or your parents qualify for the Tuition and Fees Deduction, an "above the line" deduction (meaning you don’t have to itemize to claim it) worth up to $4,000.

5. Scholarships and Grants

Generally speaking, scholarships, fellowships, and Pell grants are considered tax-free benefits if you received them while enrolled at an eligible institution. For tax purposes, federal assistance or Pell Grants are considered scholarships.  They are tax-free to you if:

  • You attend an accredited educational institution
  • You are pursuing a degree at a college or university
  • You use the scholarship, grant, or fellowship to pay qualified education expenses (such as tuition, fees, books, supplies, and equipment required for courses at the educational institution)

Assuming it’s tax-free, you do not need to report it on your tax return.

6. Tax-free Savings Accounts

There are two tax-free savings plans available to students and to those paying for someone's education. One of the savings plans is a state-sponsored account, the other is a special account sponsored by a bank or other financial institution. Both plans allow you to save money for college expenses and to withdraw the funds tax-free.

Qualified Tuition Programs (QTPs) - 529 College Savings Plans

A Qualified Tuition Program, or "529 Plan,” is a special state-sponsored savings account set up to pre-pay for college expenses. The owner of the 529 account can make contributions which may be withdrawn by the beneficiary when they attend college (or other eligible educational institution). The money in the account may be withdrawn tax-free if the funds are used for qualified education expenses at an eligible college, university, or other institute of higher learning.

529 Plans have no age or income restrictions for contributions or withdrawals, and the only limit on contribution amounts is that the total contributions may not be greater than the amount needed to pay the beneficiary's qualified education expenses.

The following expenses are qualified uses of funds from a 529 Plan:

  • Tuition
  • Books
  • Supplies required for class attendance
  • Computer (if required for class attendance)
  • Internet access (if not provided by the school, and if required for class attendance)
  • Room and board (if the student is enrolled at least half-time)
  • Special needs services

Coverdell Educational Savings Accounts - Coverdell ESAs

A Coverdell ESA is a savings account, sponsored by a bank or other financial institution, set up to pre-pay for K-12, college tuition, and other education expenses.

The savings account's beneficiary must be at least age 18 (or is a special needs beneficiary) to withdraw Coverdell funds, and must withdraw the funds before age 30 or the funds will be distributed and taxed. If the age requirements are met, the funds may be withdrawn tax-free if they are used to pay qualified education expenses. If the beneficiary turns age 30 before withdrawing the funds, they may avoid taxation by transferring the account to another qualifying relative or by rolling the ESA into a 529 Plan.

Coverdell ESAs have certain restrictions that 529 Plans do not:

  • Funds must be withdrawn or transferred after the beneficiary is age 18, but before age 30
  • Qualified expenses do not include computers or internet access
  • You may not contribute if your income is more than $110,000 ($220,000 if married filing jointly)
  • There is a maximum annual contribution of $2,000 per beneficiary (not per account and not per contributor)

The following expenses are qualified uses of funds from a Coverdell ESA (note that a computer and internet access are not covered):

  • Tuition
  • Books
  • Supplies required for class attendance
  • Room and Board (if the student is enrolled at least half-time)
  • Special needs services

7. Student Loan Interest Deduction

Once you graduate (or not) and start to pay back your student loans, you may be able to reduce your taxable income by up to $2,500 of the student loan interest paid.   Here’s the scoop:

  • Your lender should send you form 1098-E, which reports the interest you paid
  • If your parents claim you as a dependent, then they're eligible for this deduction. If no one claims you as a dependent, then you maybe eligible for it.
  • To be eligible, the loan must have been taken out solely to pay qualified education expenses.
  • Generally, the person whose name is on the loan gets to deduct the student loan interest. This person is legally obligated to make the interest payments on the loan.
  • It can be taken even if you do not itemize deductions.
  • The student must be you, your spouse, or your dependent.
  • The student must have been enrolled at least half-time in a degree program
  • As with the credits, there are income limits. The deduction is reduced if your modified adjusted income (MAGI) is greater than $65,000 ($130,000 if married filing jointly) and you’re ineligible if you’re income is $80,000 or more ($160,000 if married filing jointly).

Hopefully you found this information helpful.  Don’t worry, there won’t be a test.  In fact, you don’t really need to know this stuff, because we do.  TaxAct takes care of all of this for you – they ask you simple questions and take care of all the tax complexity automatically.  

 

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Do I Have To File Taxes?

Updated for Tax Year 2015 (for returns filed in 2016)

Do I have to file taxes? How much do you have to make to file taxes?  

Good question.  But there are actually 2 questions here, so let’s break them apart.

  1. Should I file a federal tax return?
  2. Am I required to file a federal tax return? (Do I need to file a tax return?)

 

1. Should I file a tax return?

The short answer – if you earned any income in 2015, you should file in 2016 even if you’re not required to.  Why?  To get a refund!  Most likely Uncle Sam withheld taxes from your paychecks.  Usually he takes too much.  File a return and get some of your money back!  You may also be eligible for tax credits, like the American Opportunity Credit, the Lifetime Learning Credit, and the Earned Income Credit (EIC).

I know, filing taxes can be a pain.  But TaxAct has drastically simplified tax preparation.  If it only takes a few minutes to get a few hundred bucks back, why not do it?  How else are you going to make that kind of money, that fast?

 

2. Am I required to file a tax return?

The details are below, but it’s even simpler for many young people.  If you can be claimed as a dependent by another taxpayer and are under age 65, you must file a tax return if you earned more than $6,300 in 2015. 

If you can't be claimed as a dependent, then you must file a return if your gross income meets a threshold based on your age and filing status.

 

Filing Status                                         Age on 12/31/2015                                  Gross Income

Single                                                              Under 65                                                         $10,300

                                                                            65 or older                                                     $11,850

 

Head of Household                                 Under 65                                                        $13,250

                                                                            65 or older                                                     $14,800

 

Married Filing Jointly                        Under 65 (both)                                              $20,600

                                                                         65 or older (one)                                            $21,850

                                                                         65 or older (both)                                          $23,000

 

This is taxes so of course there are some wonky rules and special exceptions.  If you want to get into the gory details, you can check out the IRS website.

All of this information applies to federal taxes, many states have slightly different rules.

 



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Tax Dependent Explained

Updated for Tax Year 2015 (for returns filed in 2016)

Can you be claimed as a dependent on someone else’s tax return?  Can you claim your child or relative as a dependent on your taxes?  Answering these questions correctly is required to do your taxes and maximize your refund.  It determines who can claim an exemption on their taxes, which reduces one’s taxable income by $4,000 for each dependent in tax year 2015 (up from $3,950 in 2014).  Tax dependent rules also apply to other benefits, such as tax credits like the American Opportunity Credit, the Lifetime Learning Credit, and the Earned Income Credit.

 

Can someone else claim me as a dependent on their tax return?

The short answer is that a relative (often your parent) can claim you as a dependent if:

  • You were under age 19, or 24 if you're a full-time student, at the end of 2015, and
  • They provided over half of your living expenses, and
  • You lived with them over half the year. If you're a student who is "living" near campus for school, the IRS usually counts this as living with your parents and they can still claim you as a dependent.

Some other obscure rules apply, too.  If you’re masochistic you can read IRS Publication 501 for the full scoop.

Here are some common examples to help you decide:

  • You are a 20 year old full-time college student. You live on or near your college campus during the fall and spring semesters and with your parents during the summer.  You work some throughout the year, but your parents provide more than half of your total financial support, including school expenses like tuition, fees, room and board.  Your parents can claim you as a dependent.
  • You are a 22 year old college student (full or part time). You receive minimal to no financial support from your parents and work to put yourself through school and pay for your apartment. Your parents can NOT claim you as a dependent. 
  • You are 23. You just graduated college and got your first full-time job. Your parents can NOT claim you as a dependent. 
  • You are an 18 year old high school senior. You work part time through the year and live with your parents.  Your parents can claim you as a dependent.

If your parent can claim you, then they get a $4,000 dependent exemption on their taxes.  If no one can claim you as a dependent, then you get a $4,000 personal exemption on your taxes.

 

Can I claim someone else as a dependent on my taxes?

Again, the IRS rules for qualifying dependents cover every crazy situation you can think of, from housekeepers to emancipated offspring.  Thankfully, most of us live simpler lives. These basic rules will cover almost everyone.

There are two types of dependents, each subject to different rules:

  • A qualifying child
  • A qualifying relative

For both types of dependents, you’ll need to answer the following questions to determine if you can claim them.

  • Are they a citizen or resident? The person must be a U.S. citizen, a U.S. national, a U.S. resident, or a resident of Canada or Mexico.
  • Are you the only person claiming them as a dependent? You can’t claim someone who takes a personal exemption for himself or claims another dependent on his own tax return.
  • Are they filing a joint return? You cannot claim someone who is married and files a joint tax return. Say you support your married teenaged son: If he files a joint return with his spouse, you can’t claim him as a dependent.

 

Qualifying Child

In addition to the qualifications above, to claim an exemption for your child, you must be able to answer "yes" to all of the following questions.

  • Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.
  • Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.
  • Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
  • Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.
  • Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage and residency requirements for claiming a child.

 

Qualifying Relative

Many people provide support to their parents. But just because you mail your mother a check every once in a while doesn’t mean you can claim her as a dependent. Here is a checklist for determining whether your mom (or other relative) qualifies.

  • Do they live with you? Your relative must live at your residence all year or be on the list of “relatives who do not live with you” in Publication 501.
  • Do they make less than $4,000? Your relative cannot have a gross income of more than $4,000 and be claimed by you as a dependent.
  • Do you financially support them? You must provide more than half of your relative’s total support each year.
  • Are you the only person claiming them? This means you can’t claim the same person twice, once as a qualifying relative and again as a qualifying child. It also means you can’t claim a relative—say a cousin—if someone else, such as his parents, also claim him.

You can claim a $4,000 (in Tax Year 2015, up from $3,950 in 2014) exemption for each qualifying dependent.

 

This sounds complicated, but don't sweat it.  TaxAct asks you all the right questions so you don't have to read IRS publications. You simply answer a few questions and they do the work to file your taxes accurately and maximize your refund.  

 



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Income Tax Basics

Looking to learn the income tax basics? First off, let’s get a few things straight. Yes, taxes kinda suck. Yes, the 16th Amendment, which ushered in the federal income tax in 1913, is a little shady. And yes, most people have no idea where their taxes actually go each year. Despite these things, everyone should know the basics about taxes because, like it or not, we gotta pay ‘em.  

The infamous income tax

As its name suggests, these are taxes you pay on the money you earn. This could include money you earn at your job, interest you earn from a savings or checking account (like anyone’s earning interest these days), retirement income, and a bunch of other sources of cash I won’t go into. In the U.S. we have what’s called a progressive tax system, which means that your tax rate goes up as you earn more money. There are ways to reduce your taxes, and I’ll get to those in a minute. Suffice it to say, if you’re getting paid, Uncle Sam wants a cut. And maybe that’s not such a bad thing. Like when your taxes are used to maintain our Interstate highways, run the National Park system, and pay our hard-working servicemen and women (albeit, not enough).

 

Paying your taxes

Uncle Sam’s gonna get his cut, one way or another. The simplest (and most common) way to pay your taxes is through your paycheck. Each time you get paid, your employer withholds federal and state taxes and forwards the money to the government. At tax time, when you get your W-2 (or 1099s if you’re self-employed, a contractor, etc.) and fill out your forms, you either get a refund or owe more. If you get a refund, it means you overpaid on your taxes throughout the year, effectively giving the IRS an interest-free loan with your hard-earned dollar. Not the best thing in the world I suppose, but at least you get a fat check that you weren’t expecting. On the other hand, if you owe money at tax time, it means you didn’t throw in enough cash and now it’s time to pay up.

 

Cutting your tax bill

As I said earlier, each of us pays a certain tax rate, based on how much money we earn. Whether you’re single or married also affects your tax rate. Despite your tax rate, there are lots of things that can cut your tax bill, such as deductions, exemptions, and credits. Deductions basically reduce the amount of tax you are responsible to pay. The Standard Deduction, for example, for a single (unmarried) taxpayer is $6,100. Similarly, the personal exemption is worth $3,900 to a single taxpayer. Credits also lower your taxes, and can even give you money back in the form of a refund. The Earned Income tax Credit (EITC) is a good one. If you make less than $51,567 you probably qualify.

 

Doing your taxes

You’ve got some options when it comes to actually doing your taxes.

 

Pen and paper

The old-skool way to do your taxes is with standard pen and paper. It takes a while and a little math, but you can’t beat the price (it’s free). Grab your tax forms online from the IRS, or get them at your local post office or library.

 

Computer, tablet, or phone

If pen and paper aren’t your thing, there are lots of mobile, online, and software options. I’d be lying if I said I wasn’t biased to Common Form. It’s easy to use, inexpensive, and there are no hidden fees. There’s something to be said for honesty these days, and Common Form gets it. Still, there are others options out there—some quite good.

 

Tax service

Your other option is to hire a tax service or professional tax preparer to do the heavy lifting for you. It’s certainly less effort on your part, but you have to pay for it. Costs range from an average of $218 for a standard 1040, to $806 for an 1120 Tax Form.  Of course, the peace of mind you get by not having to worry about your taxes might be incentive enough to pay top dollar to have someone else do them. That’s up to you.

 

Why simplification of the tax code is never going to happen

Meaningful simplification of the tax code is never going to happen. Congress can’t agree on where to go to lunch, let alone on something as politically charged as tax reform. The right is primarily funded by corporate America and the wealthiest 1% of individuals. These folks benefit greatly from the myriad loopholes and tax breaks in our system, resulting in dozens of hugely profitable companies that pay no federal income tax.  An IRS study found that one in every 189 taxpayers earning $200,000 or more in adjusted gross income paid no income tax in 2009. That's more than 10,000 wealthy households that paid no taxes anywhere in the world. How do people get away with paying little to no taxes? They invest in tax-exempt municipal bonds, which pay interest that you don't have to include as income on your tax return. They make a disproportionate amount of their income from stocks and other investments that are taxed as capital gains (15%) instead of ordinary income (up to 39.6% in tax year 2014). And they hire expensive accountants who know how to hack the system.

The left is no better. They can’t risk alienating their working class base by eliminating popular credits and deductions, like the mortgage interest deduction, property tax deduction, and Earned Income Tax Credit. If the proposed 2 percent floor on charitable giving is enacted, the Congressional Budget Office estimated it would reduce charitable donations in the United States by $3 billion annually. Non-profits aren’t keen on this of course, and they lobby the Democrats accordingly.

Throw in the millions of dollars that the tax prep industry spends lobbying against tax reform, and the headwinds are just too strong. Intuit alone has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon.

Yet the need for a pro forma (pre-filled) tax return remains huge. Tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time. The most frustrating part – it’s not hard to do. The IRS certainly has all the data it needs to do millions of American's taxes for them. Even without the treasure trove of data Uncle Sam has, a commercial product could pre-fill a tax return for most Americans rather easily. The info needed is readily available from public data records (property tax records, marriage records) and social profiles (Facebook, Twitter). Throw in a picture of your W-2 or import it from your employer’s payroll provider and bam! Your taxes are essentially done.

Look, the IRS actually wants tax simplification to happen. They’re the ones that feel the pain and expense of processing everyone’s taxes. But it’s not their call, they’re beholden to the gridlocked American political system and an entrenched, multi-billion dollar industry. We’re not. We’re a startup, beholden to no one other than the free market. We can't change the tax code, so we’re doing the next best thing – building a product that abstracts the complexity of it away from tax payers. Please take a look at what we’ve built so far and let us know your thoughts.