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QUESTION: How does tax principle #10 apply to an individual taxpayer like me?

ANSWER: Prepay state property taxes and interest for an individual taxpayer means that, you make your January 2020 property tax and mortgage interest payment early (prepay state property tax and mortgage interest). Mortgage bill includes property tax – ESCROW, no need for two separate payments. Paying your mortgage lender by the end of the year, ensures that we can deduct this interest on your 2019 tax return. In turn, this will help us itemize your taxes instead of using the standard deduction. This interest deduction may also be used as a home office business deduction.

ACTION PLAN: Make January 2020 mortgage payment by 12/31/2019 and obtain a Form 1098 from your mortgage institution. Doing this will ensure that there is consistency between the interest we report to the IRS on your Form 1040 and the interest that the mortgage institution reports in 2019 on your Form 1098. Looking on the bright side, January 2020 mortgage payment will be one less bill to worry about after all the holiday spending: shopping, eating, travelling, gifting and partying…LOL

Besides the beach, warm weather and great tourist attractions, ever wondered why retirees LOVE sunshine state?

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — DON’T tax personal income. New Hampshire and Tennessee — collect income tax ONLY on interest and dividend income.

Then there are 36 states, Pennsylvania among them, that allow retirees to exclude all or part of their retirement income from their taxable income.

Below are the most tax friendly states for retirees: Alabama, Arkansas, Delaware, Georgia, Florida, Hawaii, Illinois, Iowa, Kentucky, Louisiana, Michigan, Mississippi, New York, Pennsylvania and South Carolina.

 A. Credit Card

B. Debit Card

C. Cash

It depends on what I’m trying to achieve, the type & place of purchase:

▶️ Credit card – I use this all the time for daily & recurring bill’s. In order to build my credit score. If a transaction seems fishy, it’s easier to dispute & get a refund. However if saving money is what you want to achieve, credit card might not be the best option because you pay interest. Also if you don’t pay on time, keep off!

⏩ Debit card – A debit card is safer but I rarely use it unless, seller clearly states debit only. I also use debit if a transaction is large, possibly might exceed my credit card usage by 30%, in order to avoid dropping my credit score & paying more interest rates on the card.

⏭ Cash I always have a reasonable amount of cash in my wallet for mostly pre-tax transactions – nail & hair shops, repair & alteration services, quick sales, to make it rain in the club, tailgating & of course for tips & gifts. If budging is your goal & you want to keep track of every cent, use debit or credit.

Link your bank & cards to MINT.com it will be your best friend.

Me: B

#credit #debit #cash #save #budget #money Continue reading “Question: What saves you more money?” →

Did you know that:

The following states in the US don’t withhold state taxes – Alaska, Washington, Nevada, Wyoming, South Dakota, Texas, Tennessee, New Hampshire and Florida.

How do these states manage to operate and offer public services🤔🤔, you might ask before packing your bags and moving🤣🤣

– Tennessee and New Hampshire residents pay taxes on investments, 5% on interest and 6% on dividends.

– Tennessee has the highest sales tax in the US.

– Texas and Nevada have higher than average sales taxes.

– Texas has higher than average property tax rates.

– New Hampshire homeowners pay the highest property tax rates.

– Florida has high sales taxes, and the property taxes are higher than average.

– Washington has high gasoline tax.

– Wyoming and Alaska have higher than average tax rates from coal mining and oil drilling.

Don’t forget the road toll charges in Texas!

Married Filing Jointly (MFJ), Married Filing Separately (MFS) vs Head of Household (HOH)

Married filing jointly is the most tax advantageous filing status, because of lower tax rates compared to MFS or HOH. Combined tax is more likely to be lower when reported in one tax return.

– If one spouse doesn’t have any income, he/she can file a joint return.

– If one spouse makes more than the other, they can file a joint return.

– The year of death of a deceased spouse is the last year you can file MFJ.

– If on the last day of the year you were married or lived together for more than six months, you can file MFJ

– If on the last day of the year, a divorce decree is finalized, you cannot file MFJ.

Married filing separately in most cases results in a higher tax rate thus, more taxes owed to the IRS and State than any other tax filing status.

MFS is a viable option:

– If once spouse wants to be responsible only for their own share of taxes

– If one spouse is unwilling or doesn’t consent to filing a joint return

– If spouses live separately but not yet divorced

– If spouses live separately and one spouse files as head of household

– If one spouse suspects fraudulent/fishy income and/or deductions

– If after comparing both MFJ vs MFS, MFS generates less tax liability.

Yes, you can file MFS even if you live together with your spouse.

Per IRS Pub. 501: Reasons why MFS results in higher tax liability are:

1. Your tax rate generally is higher than on a joint return.

2. Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return.

3. You can’t take the credit for child and dependent care expenses

4. You can’t take the earned income credit.

5. You can’t take the exclusion or credit for adoption expenses in most cases.

6. You can’t take the education credits (the American opportunity credit and lifetime learning credit)

7. You can’t deduct student loan interest.

8. You can’t exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.

9. If you lived with your spouse at any time during the tax year:

a. You can’t claim the credit for the elderly or the disabled, and

b. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.

10. The following credits and deductions are reduced at income levels half those for a joint return:

a. The child tax credit,

b. The retirement savings contributions credit,

c. The deduction for personal exemptions, and

d. Itemized deductions.

11. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).

12. If your spouse itemizes deductions, you can’t claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

However, MFS lowers each spouses adjusted gross income – AGI. Hence, if one spouse has considerably a lot of uninsured medical expenses and tax deductions subject to 2% floor – such as unreimbursed employee expenses (travel and meals expenses, unemployment costs, uniforms and other miscellaneous expenses) MFS can generate less taxes.

Thus it’s advisable to request a MFJ vs MFS comparison report from your tax accountant, to determine the best tax option.

Head of household Filing this status, lowers your tax rate compared to single or married filing separately.

The three key requirements to use this filing status are:

1. You are unmarried or considered unmarried on the last day of the year

2. You paid more than half the cost of keeping up a home for the year

3. You have a qualifying dependent that lived with you in the home for more than half the year

– If you aren’t divorced or legally separated, you are considered unmarried.

– If you paid more than half the cost of keeping up a home and haven’t lived together with your spouse for more than half a year (for reasons other than military duty), you are considered unmarried.

– If your qualifying child was temporarily absent either at school or if your qualifying relative is your parent, who doesn’t live with you, but you provide more than half their cost of living, you can still file as HOH.

– A dependent child who was born and died during the year or a dependent parent who died and you supported him/her for more than half the year, is considered a qualifying dependent.

Question: Can I file my taxes as head of household, if I am separated (we live apart but not yet divorced) from my spouse?

If you lived apart for more than six months, meaning you both lived in two different houses; If you provided for more than half the cost of keeping up your house for you and your qualifying dependent(s) then YES, you can file as head of household.

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