Avoid making mistakes on your tax forms

This was originally published on Monday, March 5, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN.

Mistakes are common, but making a mistake on your taxes could cost you some hefty fees. Here are some mistakes to avoid:

File. Always file, even if you have to ask for an extension. This year’s extension deadline is Oct. 15, 2018. If you cannot afford the taxes you owe, you still should file. Not paying on time and not filing impose very stiff penalties. If you can’t pay right away, apply for an “offer in compromise” or ask to make monthly payments with an installment plan. Contact Revenue and Taxation or the IRS right away to inform them you can’t pay and try to pay as much as you can when you file, because penalties and interest are accessed to the amount owed.

Social Security numbers. Check and double-check that your Social Security numbers are correct on your tax filing. Look for transposed numbers and ensure your numbers are legible.

Names. Make sure the names on your tax filing are spelled exactly as they are on the corresponding Social Security cards. If you have a common name or someone in your family has the same name, be sure you indicate the correct title (junior, senior, etc.)

Filling status. Some people will accidentally choose the wrong status. The IRS applies different income tax rates and awards different deductions and credits depending on your filing status: single; married filing jointly; married filing separately; head of household; or qualifying widow or widower. Married couples filing jointly are entitled to twice the deductions than someone filing as single. Those who are married and filling jointly are subject to different rules than those who file separately. If you are single, do not use head of household. To ensure you are filling with the correct status, visit the IRS website, www.irs.gov.

Wrong forms. There are three different tax forms: 1040, 1040A and the 1040EZ. Your situation will dictate which form you use. For example, if you are itemizing your deductions, you cannot use the EZ version because you need to attach a Schedule A.

Math. Double-check your math. Be careful when you add and subtract. Look at the correct table. Print out several copies of your tax form and use a pencil to work the math. Once you are satisfied with the results, transfer it to your final form using a pen.

Credits and deductions. Follow instructions carefully when figuring out credits and deductions. Many mistakes are made figuring out if a credit or deduction applies to them. If you are not sure, talk to an accountant or tax preparer.

Mailing address. If you are getting a tax refund, be sure you use the correct mailing address. It would be terrible to miss out on your return because your address was wrong. If you are able to file online, be sure you put the correct bank account and routing number.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

 

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Tips to keep organized for tax season

This was originally published on Monday, February 26, 2018, in the Pacific Daily News. Click here to subscribe to the PDN.

Tracking your expenses and keeping tax-related documents could help you save money at tax time. It’s essential that you keep receipts and other documents to back up each expense and justify your deductions. Here are a few more tips to help keep you organized.

Charity. Not only does a good deed feel good, but it can also reduce your tax bill. If you gave cash to a qualified charity, get a note from the organization acknowledging your gift, if it was $250 or more. If your donation was smaller, you don’t need a formal receipt, but you will need some sort of documentation, such as a canceled check or bank or credit card statement, in case the IRS has any questions.

If you donated clothes and household items, get a receipt of the donation. The articles must be in good shape or the IRS can refute your deductions if they are deemed to be of minimal monetary value. You also can get a tax break for volunteering. You can’t deduct the value of your time, but you can deduct 14 cents for each mile you drove to help the organization.

Major changes. If you had major life changes in 2017, those changes may significantly change your tax situation. If you got married, divorced, your spouse passed away, had or adopted a child, started school, bought a house, started your own business, started renting your property, or moved for work, you should talk to a tax professional about how your tax treatment will change. Be sure to ask about the records you need to retrieve and save in order to claim these deductions.

Use a checklist. There are several good online tax checklists to help you know what documents you need or what deductions that apply to you. If you’re still waiting for your 2017 tax statements, this is a great time to start organizing your financial records or start your financial filing system. Review last year’s tax forms to help you identify records you need or those that may have slipped your mind.

Go high tech. Many of us like to hold on to paper receipts to document our expenses, but a receipt can get lost or damaged, or even fade over time. Protect receipts and other documentation by keeping a digital copy of your receipts. Scan you receipts and store them as images or PDFs. Some companies will ask if you would like your receipt emailed to you. Include your rent and utility bills as well. You can place them into folders on your computer or external hard drive to make it easier to find.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Make tax filing easier; be organized

This was originally published on Monday, February 19, 2018, in the Pacific Daily News. Click here to subscribe to the PDN.

 April is around the corner and that means tax season will be here soon. By now you should have received all of your tax documents. It all can seem overwhelming, but getting a head start on your taxes will eliminate a lot of the stress.

Filing taxes does not have to be a big ordeal. By being organized, you will cut back on a lot of the frustration and become more efficient.

According to the Internal Revenue Service, we have until April 17 to file for 2017 and pay any taxes due. The filing tax deadline is later this year because the usual April 15 deadline falls on a Sunday. Usually that would normally give taxpayers until at least the following Monday. However, Emancipation Day, a Washington, D.C., holiday, is observed on April 16. This gives taxpayers nationwide an additional day to file. By law, Washington holidays impact tax deadlines for everyone in the same way federal holidays do. For those taxpayers requesting for an extension, you will have until Oct. 15 to file.

Identification numbers. Remember to include all your dependents’ Social Security or tax ID numbers. This includes infants and elderly parents you may be claiming. If your kids don’t have an identifying number, contact the Social Security office as soon as possible. You will also need the tax identification number of the person or business that takes care of your children during the work day if you are filing for the child care credit. If you use an accountant, be sure they have all this information as well. A missing Social Security or tax ID number could cause a delay in the processing of your filing.

Form W-2. By the end of January, you should have received your Form W-2 from your employer. Your W-2 shows how much you earned and how much of that income was taxed. It also breaks down what taxes were withheld from your pay. If you work more than one job, you should receive a Form W-2 from each employer. If you are self-employed, gather all your business-related receipts and documentation. This includes office supplies and mileage for work-related trips.

Other income. Your income you receive from work isn’t the only earnings the IRS taxes. Interest earned on most savings accounts is taxable. Just like your W-2, you should receive statements from each of the financial intuitions with which you have accounts that earn interest. Interest earnings are typically documented on Form 1099-INT. If you invest in stocks or mutual funds, you should get Form 1099-DIV for each stock, mutual fund or money market account. If you use a broker, reports on your transactions will be sent to you on Form 1099-B.

Child support payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income return, don’t include child support payments received. According to the IRS website, “Amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony for federal tax purposes. Alimony is deductible by the payer spouse, and the recipient spouse must include it as income.” There are some requirements that must be met, you can find them on the IRS website, www.irs.gov.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Don’t miss deductions and credits

This was originally published on Monday, March 27, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

As the tax deadline quickly approaches, be sure that you are getting all of the deductions and credits for which you are eligible to help lower your tax bill. Many deductions are overlooked because people are unaware of them or don’t want to take the time to see if they qualify.

Here are some tax tips for the 2016 tax year:

  • Charitable contributions. If you attended a charity benefit or event, you may be able to deduct the dollar amount. The benefit or event must have taken place in the tax year. The type of donation and the type of organization can limit your charitable deduction. Donations to assist victims of natural disaster can be included.

If you donated clothing, toys, furniture, or other household items to charity, you can use the fair market value of the items donated. If you contributed to a church, use the Schedule A form. The IRS requires that you keep a written acknowledgment or receipt from the church for any contributions.

  • Estate and gift taxes. You can generally give money or property to another person without any tax consequences, provided the amount does not exceed $14,000 per year. If this amount is exceeded, it must be reported on a gift tax return.
  • IRA and retirement. There is no additional 10-percent tax on early withdrawals up to $10,000 in your lifetime from an IRA if you are buying a first home for yourself, your children or your grandchildren. There is also no additional 10-percent tax if you are paying higher education expenses for yourself, your spouse, your child or your grandchild.

You can contribute up to $5,500 to your IRA (or $5,500 to your spouse’s IRA if married filing jointly). Each taxpayer age 50 or older is eligible to make an additional $1,000 “catch-up contribution.” Learn more about IRA and retirement accounts at the IRS website.

  • Real estate property. Your home purchase can be a wonderful tax advantage. You may be able to benefit from itemizing your deductions. If itemizing, you can deduct payments such as mortgage interest, real estate taxes and most points paid by you or the seller in the year of purchase. The earlier in the year you purchase your home, the more months of mortgage interest you will have by tax time. Mortgage insurance premiums will be allowed as deductible interest on Schedule A, Itemized Deductions.
  • Military. If you are an eligible member who served in a combat zone, the IRS can exclude your income from taxation. Excludable income is your basic pay, re-enlistment bonuses, school loan repayments, imminent danger/hostile fire pay, discharge benefits and awards and other financial incentives. Non-excludable taxes are military pay earned while in combat zone, but they are are subject to Social Security and Medicare taxes.

The exclusion is for the months you served in the combat zone. Military members serving in a combat zone may qualify for a deadline of 180 days after returning for filing taxes. Contact the IRS and inform them of your situation.

The IRS excludes retired military receiving Department of Veterans Affairs education benefits as taxable income. Payments you receive for education, training, or subsistence under any law administered by the VA are tax free. Don’t include these payments as income on your federal tax return.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Child-related tax deductions, credits

This was originally published on Monday, March 20, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

No matter what your children’s ages are, raising them can definitely be expensive and stressful. As parents, we focus on the raising the children and often have to weigh the cost of money versus the cost of time.

With life’s everyday hustle, we tend to lose sight of financial shortcuts that may make life a little easier. But sometimes it’s worth taking the time to find ways to make your dollar stretch. Tax time should be no different.

If you meet certain criteria, you could be eligible to claim tax deductions and credits. Some of these deductions and credits could save you money that can ease some financial shortcomings of raising children.

Adjust your withholdings. Did you have a baby recently? If so, don’t forget to get with your employer and adjust your tax withholdings. Adding a new child to the family can give you more tax deductions when filing.

Your employer deducts taxes based on the number of allowances you claim on your W-4. When you have too much withheld from your paycheck, you basically are giving the government a loan on your money. You can be using that money to invest, save, or to reduce debt.

On the other hand, having too little withheld from your paycheck could mean you pay at tax time rather than get a refund.

The goal is to balance out to zero, so you don’t pay extra tax or receive a big tax return. You can calculate your withholding easily by going to the Internal Revenue Service’s tax withholding webpage, or go online and look for a free tax withholding calculator.

You can adjust your tax withholding at any time if you or a spouse get a second job, change jobs, were unemployed, got married or divorced, or had a baby or adopted a child.

Earned Income Tax Credit. Many qualified taxpayers may overlook this tax credit, but it can save them thousands of dollars. The eligibility is limited to low- to moderate-income earners. You must be 25 years and older, but younger than 65. Your dependents must have a valid Social Security number. According to the IRS, for tax year 2016 the maximum credit you can obtain this year is $6,269.

If you are self-employed, you may still be eligible for this credit. Unfortunately, if you receive more than $3,400 of income in 2017 from investments, stocks, rental properties or inheritance, you will be disqualified from the credit.

Higher Education Credits. Did you recently send a child to collage? Parents can claim two credits for higher education:

The American Opportunity Tax Credit: An eligible student can’t have completed four years of schooling, must be enrolled in at least one academic semester, and must maintain at least half-time status in a program leading to a degree. For more on eligibility, visit the IRS website. Only one American Opportunity Credit is available per eligible student each tax year. The maximum annual credit per student is $2,500.

The Lifetime Learning Credit: You must have made tuition and fee payments to a post-secondary school (after high school) during the year. The Lifetime Learning Credit has no limit, as long as your child participates in an eligible degree program.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Claim job-related expenses at tax time

This was originally published on Monday, March 6, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

The holiday season has gone and now we are preparing for a new season – tax season. April is next month and by now we might be scrambling to get our paperwork together. We are all looking for ways to reduce our tax bill.

Deducting business expenses is not just for the self-employed. If you are classified as a salaried employee, you may be surprised to learn that you can claim work related expenses. Remember all expenses must be incurred during the tax year, business related, cannot be reimbursed by your employer, and is helpful and appropriate for your business.

If you qualify, here are some job-related tax tips:

  • Auto expenses: Traveling for business is one of the most frequent work-related deductions. Some deductible auto costs, include visiting clients, going to meetings away from your regular work location, or traveling between two work places — whether it is the same employer (as long as it is not a home office). Gas is deductible if you use your vehicle for work-related trips, but not for regular transportation to work. For the tax year of 2016, the standard mileage rate is 54 cents per mile.
  • Travel expenses: If your employer does not pay or reimburse you for your travel expenses, you can deduct some of your expenses. Costs for transportation, baggage fees, telephone expenses and meals can be deducted. Even the cost of your passport for a business trip may be a deduction.
  • Computer and cell phone: If your employer requires that you have a cell phone and/or a computer as part of your job, you may be able to claim a depreciation deduction. You must keep a record of the personal and business use of the devices and determine the percentage of time that is used for business related work.
  • Entertainment: If you provide entertainment to potential clients you may be able to deduct 50 percent of the amount. You must have records to prove the business purpose and the amount of the expense. Entertainment generally includes any activity considered to provide entertainment, amusement or recreation to potential business clients.
  • Start-up costs: Did you start up a business in 2016? You may be able to deduct up to $5,000 for organizational and start-up costs. Some start-up costs include paying for a survey or analysis of you market, advertisements, or travel for securing prospective distributers, suppliers, or customers. If you cannot deduct all your costs in the first year,you can amortize the costs over 15 years.
  • Moving expenses: If you had to move off island in 2016 because of a change in your job or business location or to start a new job or business of your job, you may be able to deduct the cost of moving. You can consider moving expenses incurred within one year from the date you first reported to work at the new location. Some of the expenses include household goods and travel costs. There are some deductions for those that move due to a permeant change of station for members of the Armed Forces.
  • Tips: If you receive tips as part of your income, you must claim them. This includes tips you receive directly, charged tips by your employer and tips you receive from tip-splitting or tip-pooling. You must keep a daily tip record and report your tips to your employer.
  • Miscellaneous expenses: Deductions that are unreimbursed employee expenses such as union dues, tax preparation fees, job-related books or magazines can be claimed. Some of the expenses that you claim may be limited to “the 2percent floor” — it requires that you may only deduct the part of the expense that exceeds 2 percent of your adjusted gross income.

Other expenses:

  • Home office costs if it is your principal place of business.
  • Job search expenses.
  • Legal fees to keep your job.
  • Work clothes and uniforms costs that are not normal everyday wear that are a condition of your employment (work shoes, special gear, etc.)

There are many other deductions for business. If you are not sure that your business expenses are deductible go to the IRS website, http://www.irs.gov, or seek the help of a professional tax preparer.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

 

It’s only December, but not too early to discuss taxes

This was originally published on Monday, December 21, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

It’s only December and we are talking taxes. Taking time to review your year can help you when tax time rolls around. Reviewing your information that affects your taxes now will save you a lot of stress in April. It also gives you time to make changes that may affect your finances for next year. Be expecting your W-2 by mid to late January.

Review last year’s tax return. Did you get a large tax return last year? A large tax return is an indication that you may be withholding too much of your income. Many people look for a large refund at the end of the year and use this as an opportunity to save money. In fact you can put that money into a savings account and earn the interest. If you had to pay the government at the end of the year, you are underpaying your taxes. Try to balance your W-2 so that you are almost breaking even on the amount of taxes you pay.

Retirement account. Retirement funds are an excellent place to store your income. Most retirement plans tax the money when you with draw from it. When you place more of your income into your retirement plan you can defer the tax till a later time. Adding more to your retirement is never a bad idea.

Deferring taxes. This is a legal way that lets you pay taxes tomorrow on what you earned today. This lets you hold on to the money you make a little bit longer. You can invest the money, pay off debt, improve your home, or build your emergency fund. You can use that hard-earned money and make it work for you now. You can place your money in certain types of retirement accounts or investments or into real estate. You should consult a tax accountant to help you defer your taxes.

Itemizing. Itemizing on your taxes can work for most. Itemizing takes a little more time, but for some it can really pay off. Prepare your taxes using the standard and itemized forms and compare which can save you the most.

Investment losses. Did any of your financial investments lose money this year? These losses can be used to help offset any capital gains you had this year. Your financial adviser should be able to direct you when claiming it during tax time.

Charity. It is the season for giving. If you gave to charities this year be sure to claim it on your taxes. Charity can be monetary donations or goods. If you donated goods such as clothing, toys, furniture, or any kind of household goods, ensure that you receive a receipt. At tax time you can claim it to lower your tax bill.

Taking time now to review your tax information will give you a preview on how your tax bill may look in April. Making small tweaks now may save you a significant amount of money in the end. If you come to the conclusion that there is not a lot of changes to be made, take comfort in the fact that you are almost done filing your taxes. When your W-2 arrives, it’s a matter of making small adjustments and you can file your taxes early. There will be no waiting and no stress. What a way to start the New Year.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at moneymattersguam.wordpress.com.