Easy Money: How to file taxes in 2018

Easy Money: How to file taxes in 2018

Easy Money: How to file taxes in 2018

Welcome to Easy Money, where we make super-complicated financial stuff simple(r) to help you do it better.

Whoa, boy. Republicans have everyone confused about taxes. That’s what happens when you pass a massive system overhaul less than a month before W-2 forms go out. (Thanks, Congress!) Here’s the thing, though: The tax bill won’t directly affect the taxes you file this year. Most provisions go into effect Jan. 1, 2018, but they’re not retroactive — and your 2017 taxes are due by April.

So, as we talk tackling taxes this year, a lot of information will look old hat. But don’t worry: We’ll note some of the big changes on the way — and how they can influence your 2017 tax return.

Let’s dive in.

First, get your ish together

To file, you need any applicable:

  • W-2s,
  • 1099s, which report other income, like interest and dividends or self-employment wages
  • 1098s, which report stuff you can deduct, like mortgage interest or tuition expenses
  • Documentation for other deductions you want to take, like receipts for charitable donations
  • Your 2016 tax return
  • Bank account and routing number, if you want the IRS to direct-deposit your refund
  • Your adjusted gross income (AGI), which is basically your gross income (including any interest you’re including on 1099s), minus “above the line” deductions, most notably, retirement plan contributions, alimony, medical expenses and unreimbursed business expenses. Sounds complicated, but your 1040 walks you through calculating AGI.

Next, bookmark these dates

  1. Expect last year’s W-2s by Jan. 31, 2018.
  2. Your 2017 taxes are due by April 17, 2018. (Not a typo. You get two extra days this year because April 15 is a Sunday and April 16 is Washington D.C. Emancipation Day.)
  3. If you need more time, you must file for an extension by April 17, 2018.
  4. If you get an extension, your tax returns are due by Oct. 15, 2018. But don’t get it twisted: That extension only applies to your paperwork. If you owe the Internal Revenue Service money, you must pay by April 17, 2018.

Figure out your filing status

There are five options, pretty much determined by your marital status on the last day of the year.

  • Single Filing Status, meaning you’re not married, divorced or legally separated
  • Married Filing Jointly, meaning you’re married and filing a return with your spouse
  • Married Filing Separately, meaning you’re married, but not filing a return with your spouse
  • Head of Household, meaning you’re not married, but have paid more than half the cost of maintaining a home for yourself and a qualifying dependent
  • Qualifying Widow/Widower, meaning your spouse died within the last two years, you haven’t remarried and you have a dependent child

Your filing status is mostly straightforward. If you’re single, file single. If you’re a head of household, file head of household. If you’re a recent-ish widow(er) with a dependent, file qualifying widow(er). If you’re married, you’ve got a choice to make. Most couples score the bigger tax break by filing jointly, but there are reasons to file separately. Here’s a high-level overview of filing together vs. filing solo.

Why married couples file jointly

  1. For a higher standard deduction (more on this in a few)
  2. To reduce what you owe, since higher tax brackets kick in sooner when you file separately
  3. To qualify for certain deductions you can get more easily when filing jointly, like the Child & Dependent Care tax credit

Why married couples file separately

  1. To separate your tax liabilities (say, you’re worried your spouse is evading Uncle Sam)
  2. To score a significant itemized deduction one spouse can’t take were the couple to combine incomes (some deductions are limited by your adjusted gross income)
  3. One spouse has debts subject to refund seizure or an income-based payment (like student loans)

We can’t tell you what to do. You — or your tax preparer — need to look at your finances and crunch the numbers. Having said that, you may want to crunch the numbers, i.e., prepare your tax returns both ways to see if it’s better for you to file jointly or separately. Yes, that’s extra work. It’s also the best way to know how to come out ahead.

Know the tax brackets

OK, remember, we’re talking about filing taxes in 2018 for 2017, so you’re subject to the tax brackets in place before the Republican-led tax reform. Here they are.


Now, here’s the thing about tax brackets: They’re not all that straightforward. (Who’d a thunk it, right?) You don’t make, say, $80K and get taxed at 25% for all those dollars. The system’s progressive. So, assuming you’re single, the first $9,325 you make gets taxed at 10%, the next $9,326 to $37,950 gets taxed at 15% and the remaining amount (given the next tax bracket, for 2017 at least, is $37,951 to $91,900) gets taxed at 25%.

This is confusing, but also important so (a) you don’t try to needlessly claw your way into a lower tax bracket and (b) you get an accurate estimate of your tax bill before you must pay it. Part B is all-the-more important as we head into 2018, since the tax brackets are changing. (The progressive system is not.) Effective Jan. 1, 2018, they become:


Decide if you’re taking the standard deduction

Deductions lower your taxable income. The standard deduction is the most basic way to approach this. In lieu of listing every qualified expense that ate into your net worth during the year, you claim a fixed amount associated with your filing status. For tax year 2017, the standard deduction is:

  • $6,350 for single filers
  • $6,350 for married filing separately
  • $12,700 for married filing jointly
  • $9,350 for heads of households

Flash forward: The GOP tax bill practically doubles the standard deduction for all filers, so for tax year 2018, it’s $12,000 for singles and married people filing separately, $24,000 for married couples filing jointly and $18,000 for heads of household.

If you don’t take the standard deduction, you’re itemizing. People itemize when (a) their deductions exceed the standard deduction and/or (b) they can’t take the standard deduction, because there are exemptions. For example, someone who’s married filing separately is ineligible if their spouse itemizes deductions. If you’re itemizing, you need to …

Know your deductions & exemptions

Let’s start with deductions. There are a bunch of them, but, for the sake of simplicity — which, again, is what we’re going for — here are the most common ones. By the way, a lot of these deductions, though totally fair game this year, are changing in tax year 2018. We’ll flag some of the bigger changes as we go.

Mortgage interest deduction: You can deduct the interest paid on up to $1 million in mortgage debt on your primary home and, sometimes, a second one. Flash forward: The GOP tax bill lowers the cap to $750,000 of mortgage debt, though it’ll stay at $1 million for mortgages made before Dec. 15, 2017.

State & local tax (SALT) deduction: Itemizers can deduct state income, sales and property taxes. Flash forward: The GOP tax bills caps the SALT deduction at $10,000, starting next year — which is why people were rushing to prepay 2018 property taxes in December.

Student loan interest deduction: You can deduct up to $2,500 of interest paid on student loans.

Charitable donations: Itemizers can deduct donations made to eligible organizations. The deduction can’t exceed 50% of your adjusted gross income (or 30%, in some instances). Plus, you’ll need the receipts.

Medical expenses: You can deduct out-of-pocket medical expenses exceeding 7.5% of your adjusted gross income. That’s a result of the GOP tax bill, which lowers the threshold from 10% for tax years 2017 and 2018. It goes back up for most Americans in 2019.

Health savings account contributions: Money put into an HSA, which helps with out-of-pocket medical expenses, is tax-exempt. In 2017, you can deposit up to $3,400 if you’re a single filer or $6,750 for families.

Individual retirement contributions: You can deduct Roth and traditional individual retirement account contributions, depending on your income, filing status and whether you have a retirement plan at work. Contributions are limited, too: In 2017, you can put up to $5,500 or, if you’re age 50 or older, $6,500, into an IRA account. You can see if qualify for a full or partial deduction here on the IRS website.

Genius tip: You can make retroactive HSA and IRA contributions up until April 17, 2018, so there’s still time to score those tax breaks.

Moving expenses: You can deduct some moving expenses if you relocated because of a job change. Flash forward: This deduction is donezo next year, thanks to the GOP tax bill, which suspends it through 2025.

Exemptions also reduce your taxable income, but, for individuals filing taxes, there are really only two of them.

  1. You can claim a personal exemption, so long as no one else is claiming you as a dependent. The personal exemption in 2017 is $4,050, but it starts to get lower once your adjusted gross income hits $261,500 ($313,800 for married couples filing jointly) and is null and void if your AGI is $384,000 or higher ($436,300 for married couples filing jointly.)
  2. You can also claim a dependent exemption, if, you know, you have dependents. That’s usually means children, but there are other scenarios where a relative qualifies. In 2017, you can deduct $4,050 for each dependent.

Flash forward: The GOP tax plan does away with the personal exemption, starting next year through 2025. The impact this could have on your taxes will vary, because, remember, the standard deduction nearly doubles next year. Still, itemizers and families, especially, should discuss with their tax preparer whether it’s worth adjusting their withholding for 2018.

Don’t forget credits

Credits, unlike deductions, get subtracted from your actual tax bill, not your taxable income. Tax credits come in two flavors: refundable and non-refundable. Refundable credits can reduce your liability beyond $0. Non-refundable credits don’t. There are a bunch of credits, too, but here are the most common.

Earned income tax credit: A refundable break for low-to-moderate income families; the amount varies based on your number of children and income. There’s a bunch of boxes you need to check off to qualify for the EITC, but, as a benchmark, if your earned income and AGI exceeds $53,930, you’re definitely not eligible.

Child tax credit: A non-refundable credit of up to $1,000 per qualifying child; eligibility is determined by age, relationship, family income and more.

Child & dependent care credit: A non-refundable credit for paying someone to look after a dependent while you work; the amount is between 20% and 35% of your allowable expenses ($3,000 for one dependent; $6,000 for two or more), depending on your AGI.

Savers credit: A non-refundable tax credit that offsets the first $2,000 low-to-moderate income workers save for retirement. Eligibility varies by filing status and AGI.

American opportunity credit: A partially refundable tax break for students paying for college. The maximum annual credit per student is $2,500.

Lifetime learning credit: Another tax break for students, this non-refundable credit is worth up to $2,000, depending on income and filing status.

Mind your penalties

This is the stuff that’s gonna up your tax bill. Penalties aren’t abundant, per se, and you’re probably familiar with most of them, but here’s an overview of what can jack up your tax bill.

Early withdrawals: In most cases, if you withdrew money from a retirement account during the tax year and you’re not 59-and-a-half, you must pay an additional 10% early withdrawal tax. There are some exemptions, though. For instance, first-time homebuyers can take up to $10,000 out of an IRA for their house, sans penalty.

Missed minimum distributions: Conversely, once you hit age 70-and-a-half, you have to start withdrawing from retirement accounts, including 401(k)s, traditional IRAs, SEP IRAs and SIMPLE IRAs. If you didn’t make your minimum distribution by Dec. 21, 2017 (or April 1, 2018 if you turned 70-and-a-half this tax year), you’ll pay a 50% excise tax. Minimum distributions vary by age and marital status.

Failure to file/failure you to pay: The exact charge depends on where you went wrong (failure to file costs more), how long you go AWOL, how much you owe and whether you enter a payment plan. There are also penalties for bouncing checks, underpaying or misreporting what you owe.

Filing late: If you miss the April 17 deadline — and didn’t get an extension — you face a penalty of 5% of the unpaid taxes each month the return remains late. That penalty accrues the day after your due date, but won’t exceed 25% of the unpaid taxes.

Not having health insurance: Yes, the GOP tax bill repealed Obamacare’s individual mandate, but it was still in effect for tax year 2017, so, if you went without a health care plan last year, you face a penalty of either 2.5% of your taxable income or $695, whichever is greater. In fact, you’ll face a penalty in tax year 2018, too. The repeal doesn’t take effect until 2019.

Get ‘er done

OK, now you (more or less) know what’s up, it’s time to file. And, again, you have a choice to make: How should you do your taxes? The best option varies, depending on how much time you have, how complex your returns are and how tax-savvy you are. Still, technically, everyone has three options.

  1. Do-it-yourself: Yeah, going old-school probably isn’t your best bet if your taxes have a lot going on. However, if you’re filing via a 1040EZ — meaning you make under $100,000, are filing single or married jointly and don’t have any dependents — or even fairly straightforward 1040, you could give it a go. It’ll certainly save you some dough: Filing via good old paper and pen pretty much only requires paying for postage. (You can download all the forms you need from the IRS website.) But, if you make under $66,000 a year, you can actually e-file for free. There are volunteer groups, too, that work with the IRS to provide free tax assistance to qualifying individuals.
  2. Use tax software: If your taxes are all Baby Bear (you know, not too hard, but not too easy), basic tax software is probably the way to go. It’ll take a little time, but you’ll pay less for the goods than you would to a tax preparer.
  3. Hire a professional: If you’ve got a complicated estate, the expertise of a reputable, licensed tax preparer is probably worth their fees. Ditto for if you have zero time to do your taxes. But notice how we specify using a reputable tax preparer. That’s because there are, unfortunately, plenty of scammers out there. To avoid getting got, make sure a prospective preparer has a Preparer Tax Identification Number (they’re required to by law). And check with the Better Business Bureau or online review sites to see how past clients rate them.

Recommended reading

To help you build your expertise, here are some useful tax resources from around the web.

For more life & money tips, visit our Moneygenius magazine.

This article originally appeared on Policygenius.
Image: Yuri_Arcurs

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5 Life Hacks That Can Easily Save You $10,000

5 Life Hacks That Can Easily Save You $10,000

5 life hacks that can easily save you $10,000

Life’s expensive. And, while there’s no getting around that over-arching fact, there are a few ways to cut corners. Make a budget. Automate savings— and investments. Leverage credit card rewards.

There are also some savvy ways to save some serious dough. Here are five life hacks that can collectively save you $10,000 (for real).

1. Fix your credit score

Bad credit (generally considered a score of 600 or lower) is going to cost you a whole lot in interest. Case in point: A low credit score typically increases the cost of a $20,000, 60-month auto loan by more than $5,000, per the Consumer Federation of America.

But expensive financing is just one way a terrible score makes you pay more. Getting cable? Expect a fee due to those digits. Found a cheap (and nice!) apartment? You might lose that lease to someone with better credit. Need car insurance? Don’t be surprised by higher premiums if your score isn’t in decent shape.

Fortunately, bad credit isn’t forever and you can start improving your score by paying down debt, disputing credit report errors and limiting new credit inquiries. We’ve got more ways to raise your credit score here.

2. Shop around … for everything

Comparison-shopping can take a little legwork (emphasis on “little” here, because, you know, the internet), but it can save you a ton of money — especially if you do it everytime you buy something. Shopping, comparing and negotiating can save you thousands of dollars on a mortgage, for instance, and is just as instrumental when you’re on the market for a new ride. But it’s also important when you’re shopping for services, like utilities, cellphone or cable/internet plans.

And, as we’re well aware, comparison-shopping for any type of insurance can save you hundreds of dollars. It’s particularly important when you’re looking for life insurance. That’s because certain life insurance companies are just more favorable to different demos and/or conditions than others. Some offer better rates to boomers, for instance, while others are more lenient about high-cholesterol. You can go here to learn more about the best life insurance companies in general and Policygenius can help you specifically save up to 40% on a policy via our life insurance quote comparison tool here.

3. Use an HSA as a second IRA

We can’t say enough good things about Health Savings Accounts (HSAs). They’re tax-deferred, earn interest that’s tax-exempt and are a crucial part of managing medical expenses when you’ve got a high-deductible healthcare plan. They’re also a powerful savings tool, partially for the reasons mentioned above, but also because good ol’ Uncle Sam caps how much money you can sock away for retirement each year. When it comes to IRAs and Roth IRAS, those limits are $5,500 in 2017 and 2018 (or $6,500 if you’re age 50 or older and need to catch up).

But you’re also allowed to contribute up to $3,450 per individual or up to $6,900 per family into an HSA next year (limits are adjusted annually for inflation). And because those funds roll over year-to-year and can be used for non-medical expenses penalty-free once you turn 65, they can serve as a de facto supplemental retirement account.

4. Get legal insurance

Legal insurance covers attorney fees for almost any legal problem. And, while you’re probably saying, ‘how worried should I really be about getting sued?,’ there are lots of reasons someone needs a lawyer. In fact, legal insurance is most commonly used for divorce, estate planning and real estate transactions. That last part is where the hack comes in: Some states mandate an attorney oversee closing on a home and, even in those that don’t, it’s generally a good idea to have legal expert review your contract and do a title search. Hourly rates for attorneys can range from $240 to $495, but if you have legal insurance, your policy will generally foot that bill. Plans typically cost between $15 to $22 a month and are often available through an employer.

5. Two words: Debt avalanche

No, that doesn’t mean bury yourself in an avalanche of debt. Quite the opposite, in fact. The debt avalanche, sometimes called debt-stacking, is a money-saving method for getting out of the red. You make all your minimum loan payments, but put as much money as can toward the balance with the highest interest rate. Once that balance is gone, you move onto the one with the next highest APR and so on and so forth until all your debt is gone. This method helps you get out of debt faster and saves you a ton in interest.

Looking for more money hacks? Here are five ways to save 30% of your paycheck (mostly) without trying.

This article originally appeared on PolicyGenius.
Image: Aleksander Nakic

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The Best Days (& Ways) to Save Money on Holiday Travel in 2017

The Best Days (& Ways) to Save Money on Holiday Travel in 2017

The best days (& ways) to save on holiday travel in 2017

OK, OK, we know you’re just trying to get through Halloween, but if you’re planning a big holiday trip, we need to talk about Thanksgiving and Christmas. Travel’s a supply and demand game, and auto club AAA put about 103 million people hitting the roads and/or sky between Dec. 23 and Jan. 2 in 2016. In other words: time to start planning.

Here are eight ways to save on your holiday travel in 2017.

1. Book now

Seriously. Like right this second. Plenty of studies from trusted travel search engines have found October’s the time to get a cheap(er) flight home for Christmas and New Year’s. And, TBH, the best days might already be behind us. A study from Skyscanner actually found booking a Thanksgiving flight eleven weeks out (the week of Sept. 4th) would save you the most. But don’t get too down: Today will almost always be better than tomorrow. Prices tend to climb steadily as a holiday approaches. And, if you’ve got to hold off on booking your airfare, you still can save by flying on the “best” days.

2. Travel on Thanksgiving

Not ideal, we know, but that’s exactly why it’ll save you money. Everyone wants to take-off the day before Thanksgiving and come home the Sunday after, so, naturally, those days are the most expensive to fly on. But flight comparison site Hopper found you can save $54 by departing on Thanksgiving morning (Nov. 23) and $161 by returning on Wednesday, Nov. 29 instead.

3. Go home early for Christmas …

Hopper’s data put Saturday, Dec. 16 or Tuesday, Dec. 19 as the cheapest days to head home for the Christmas in 2017, while Friday, Dec. 22 was the most most expensive. Traveling on Christmas itself was in the middle of the $324 to $434 average price range.

4. … & stay later into the new year

Lots of people head home on New Year’s Day (it’s on a Monday this year, so they probably need to get back to work the next day). Needless to say, a flight on that day will cost you. Hopper puts it at $428 on average. But traveling after the first day of 2018 will save you some money, with Jan. 4 hitting maximum cheapness ($331).

5. Stay with the fam

That way you can skip paying for a hotel room. If there’s no room at the family inn, consider alt-accomodations, like Airbnb, VRBO, Flipkey or HomeAway.

6. Ship your luggage

Most of the time, it’s cheaper to pay a baggage fee, but if you need to bring a ton of gifts with you and/or are staying for a long stretch of time, shipping becomes a budget-friendly option. Sometimes, sending your stuff four or five days ahead of your trip will cost less than the fee for an overweight bag or multiple checked bags. Plus, shipping companies like FedEx, UPS, the U.S. Post Office or specialty services like Luggage Forward have a leg up when it comes to protection and tracking for your things. Speaking of protection…

7. Get good travel insurance

Travel insurance covers financial losses related to a delayed or canceled trip. It usually costs around 4% to 8% of the total trip, but comparison-shopping can help you score the best deal. You can compare travel insurance quotes here.

8. Use an app

These days, technology furnishes you with everything from airfare alerts to digital coupons to currency conversion. Apps can also help you track cell phone data usage or find a cheap place to gas up your tank. You can find some of our favorite travel apps here.

This article originally appeared on PolicyGenius.
Image: Tom Merton

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