Filing taxes can be an extremely difficult task. There are so many rules and regulations that it can make your head spin. Additionally, when you are married and considering how you should file, things can get even more complicated. Discovering if filing together or separately will yield the most benefits is a question which needs to be thoroughly researched. While there is no clean-cut answer and most people opt for filing together due to the tax breaks you can receive, there are some cases where filing separately may actually be of greater benefit to you and your spouse.
1. One of you is self-employed
The rules for those who are self-employed (freelancing, independent contracting, etc.) are very different from those who are working the more traditional 9-5 job. This is due to the fact that you are not only paying income tax, but you are also responsible for covering your own Social Security and Medicare tax. Since this is not coming out of your paycheck, self-employment tax rates for 2015-2016 were 15.3%.
Because of the differences in what you will have to pay, you are generally expected to make estimated quarterly payments to cover your taxes. If you have not been doing this, or you underestimate how much you will need to pay, this could set you back greatly and result in a large sum being taken from your refund. For those who are self-employed, it is sometimes advisable to file separately from your spouse. While you may lose some tax benefits, in the end, you may have to pay fewer taxes. It is important to weigh both sides in order to see which way you and your spouse will come out better in the long run.
2. You’re struggling With student loan debt
Debt deriving from paying for college is something which impacts approximately 70% of Americans. It is said the average debt for college graduates is around $30,000. This high number coupled with the difficulty of finding a job these days often presents young adults with many headaches. If you decide to repay your student loans through an income-dependent plan, this can become a little tricky when you are married.
The reason for this derives from the fact that if you and your spouse file together, your joint income will be considered for this type of repayment plan even if only one of you has debt. Therefore, when you file by yourself, only your income is considered in determining the kind of payments for which you qualify. Once again, in the process of filing separately you may lose specific deductions. However, if you do not have kids and take out standard deductions, the pinch will not be as drastic.
3. You have a lot of itemized deductions
Deductions are a great asset to utilize when doing your taxes as they help to reduce the amount of taxes you will have to pay. However, it is important to note the IRS does have an established limit of how much you can take off based upon your annual income. For this reason, it is important for you and your spouse to examine your deductions to see if separate or joint filing will give you the greater benefits. If you discover you both have numerous deductions you plan to claim, yet there is a substantial gap in what you earn, then filing separately would be the best route.
For example, if in the previous year, you paid a substantial amount of out of pocket medical expenses, you are allowed to deduct any amount which exceeds 10% of your adjusted gross income. If you have only earned around $25,000 within the past year, then you have a good deduction. However, if your spouse makes $150,000 and you decide to file taxes together, you are increasing your income and therefore increasing the 10% bracket. In a case such as this, it is a good idea to consider filing separately, allowing you to increase your deductions and reduce your out of pocket expenses.
In conclusion, these are just a few of the factors which married couples need to consider when filing their taxes. In situations where you are planning to divorce or you are concerned about being liable for your spouse’s tax debt, then it is advisable to file separately. However, in other cases, where the answer is not so clear, it is always a good idea to configure the numbers in order to discover the best way of receiving a good outcome on your taxes.
*This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Tech stocks have become a popular choice among investors. While owning a share of stock in Google or Apple might be out of reach for some people, there are plenty of companies whose stock is more affordable. That doesn’t mean, however, that you can just dive in without doing your homework. Take a look at some common mistakes people make when investing in tech.
1. Investing Without Considering the Long-Term Forecast
Many people these days rush to invest in tech stocks. But if you’re not careful, the wrong move could put your portfolio in jeopardy. Before buying shares of a particular tech company’s stock, it’s a good idea to step back and look at how the company fits within the industry. It’s also wise to find out what experts are saying about its future. That way, you can avoid making an investment that isn’t likely to pay off.
2. Investing in Companies That Are Overvalued
During the recent tech boom, many startups ended up with valuations of $1 billion or more. But once some of those unicorn companies went public, many investors realized that they were overvalued.
If you’re betting on a tech stock solely based on the company’s valuation, you could be setting yourself up for disappointment if the stock’s value takes a dive. You can also run into problems if a company’s stock price is too high and falls rapidly during a market slowdown.
3. Playing It Too Safe
Investing in stocks is risky. Looking for tech stocks with a stable track record can minimize your investment risk, but you don’t want to fall into a rut. If you’ve invested in a company that hasn’t made much progress since you first bought your shares, you might be better off putting your money elsewhere. It might also be a good idea to choose a company that consistently introduces new products and features. When a company like Apple brings out a new iPhone that appeals to the masses, its stock tends to perform well. A company that has more or less flat-lined creatively, on the other hand, may not see much movement in its stock price.
4. Overlooking Dividend Stocks
One pitfall some tech investors fall into is focusing on stocks that they can buy low and sell high for a big return. In the process, they sometimes ignore dividend stocks that can create a sustainable flow of income. Even when a dividend stock loses value, its dividend payouts can remain on an even keel. In some cases, the dividend payout increases incrementally over time. If you’re not taking advantage of the opportunity to invest in dividend stocks from companies like IBM, you could be selling yourself short.
Investing in tech isn’t for amateurs. Keeping up with industry trends and understanding the way that the stock market works can put you in the position to earn greater returns. Avoiding the mistakes we’ve
discussed is a good idea if you want to boost your profit potential the next time you decide to gamble on a tech stock. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.
Investing involves risk including loss of principal. No strategy assures success or protects against loss. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
Content written by Rebecca Lake for Smartasset. Click here for the original article.
Full retirement age is now 66 or 67, depending on the year you were born. But a recent survey revealed that one in four workers don’t plan to retire until after their 70th birthday. While some people may choose to work longer out of a desire to stay active, others may have to do so in order to keep up with their expenses. If you’re thinking about putting off your retirement, here’s a look at some of the pros and cons of working until age 70.
Pro: Working Longer May Be Good for Your Health
Getting older takes a toll on you physically. But according to one study, working longer could extend your life span. Researchers at Oregon State University found that putting retirement off for just one year after turning 65 could reduce the risk of dying by 11%.
Sticking with the 9-to-5 until age 70 doesn’t mean you’ll live forever. But it could give you more time to enjoy your golden years.
Pro: You Can Squeeze More Money Out of Social Security
With Social Security, you can get more bang for your buck by waiting until age 70 to begin drawing your benefits. If your normal retirement age is 66 but you wait until you turn 70 to start taking your Social Security benefits, you could receive 132% of the monthly amount you’re eligible for. That’s a nice financial incentive for working a little longer.
Pro: You Can Continue Growing Your Nest Egg
Working until age 70 could be a smart move if you want to add more money to your retirement fund. If you have a 401(k), for example, you could continue making contributions up to the annual limit, along with catch-up contributions while you’re employed. You could also defer triggering required minimum distributions from an employer-sponsored plan.
If you’ve got a traditional IRA, you can make new contributions until age 70 1/2. At that point, the required minimum distribution rule would kick in. With a Roth IRA, however, you have the advantage of being able to save indefinitely.
Con: Your Savings May Still Come Up Short
Continuing to earn a paycheck may help you out if you want to save more for retirement. But it may not do you any good if you end up having to spend a lot of money to counter a rising cost of living. Healthcare expenses in particular can take a big bite out of your savings.
The Bureau of Labor Statistics estimates that the average 65 to 74-year-old spends 12.2% of their income on healthcare each year. By the time they turn 75, medical expenses eat up nearly 16% of their income. At the same time, housing costs also creep up, moving from 32.4% of income in the late 60s and early 70s to almost 37% by age 75 and beyond.
Working longer also doesn’t counter the effects of inflation. When inflation rises, it has the ability to significantly erode retirement savings. According to one report, retirees can lose as much as $94,770 over the course of a 20-year period if the annual inflation rate is 2.5%.
The Bottom Line
If you’re on the fence about whether you should work until you turn 70, weighing the advantages and disadvantages of delaying your retirement can guide you toward making the decision that’s best for you. Remember that while having extra income can certainly be helpful, you’ll have less time to enjoy your retirement.
A question which often arises among those who are thinking about retirement is, “Will my Social Security income be taxed?” Generally speaking, the answer to this question is yes; however, there are deviations from this. Previously, Social Security income was not taxable. But things have changed. Everyone drawing Social Security gets 15% of their benefits tax-free. After this percentage, things change. If you rely exclusively on Social Security for your income, your entire benefits should be non-taxable. However, if you fall in the bracket of people who receive income from other outlets such as a 401(k), a pension, or a part time job, you are receiving more than the Social Security Administration limit allows for tax free-benefits and therefore up to 85% of your Social Security could be taxed.
IRS Income Limits:
As of 2015, the IRS limits for configuring tax liability of your Social Security income are as follows:
A person filing individually with a combined income (your Adjusted Gross Income + Nontaxable Interest + 1/2 of your Social Security benefits.) within the financial bracket of $25,000-$35,000 must pay income tax on up to 50% of their Social Security benefits. If an individual has a combined income of $34,000 or more, they will be required to pay income tax on 85% of the Social Security benefits.
For married couples who are filing together, if their combined income is between $32,000 and $44,000, they will be required to pay taxes on up to 50% of their benefits. If, however, their combined income is more than $44,000, they must pay taxes on 85% of the Social Security.
As of right now, no one pays taxes on more than 85% of their Social Security benefits no matter their financial bracket.
The monthly Social Security check averages around $1,294. This is an annual income of approximately $15,528. If your benefits are near average and this is your sole income, you will not have to pay any taxes on your Social Security. If you are not sure about your Social Security income you can consult form SSA-1099 for a summary of your benefits.
Federal Taxes on Social Security Income:
For those who have figured out that they will need to pay taxes on their Social Security, the tax rate is the same as regular income. To break it down, for every dollar over $25,000 that an individual makes, $.50 of their Social Security benefits could be subject to federal taxation. This number rises to $.85 when an individual claims an income over $34,000.
If 50% of your benefits are subject to taxation, the amount you include in your taxable income will be the lesser of either (a) half of your annual benefits or (b) half of the difference between your combined income and IRS threshold. However, if you figure out that 85% of your benefits are subject to taxation, things can get even more complicated. In order to help you better understand the tax liability on your Social Security, it is advisable to check into the worksheet and e-file software provided by the IRS. These sheets will help you to better calculate and understand your income tax.
The Impact of Roth IRAs:
Based upon the information above, you may be a little concerned about the taxes you will have to pay once you are in retirement. If this is the case, you might consider saving your money in a Roth IRA. With this type of IRA, you save after taxes. With a traditional IRA you will be required to take Required Minimum Distribution; however, with a Roth you have already paid the taxes on that money.
Because of this, a Roth IRA will not add to your provisional income; therefore, such an account will allow to draw additional income without going over the IRS threshold concerning Social Security.
You Can Make Social Security Taxes a little Simpler:
There are ways to avoid the shock of paying a large amount of taxes in one large lump. First, you can ask the Social Security Administration to withhold taxes from checks. This is simply done by submitting a IRS W-4V form. Second, you can pay your taxes on quarterly basis just like you would taxable investments.
State Taxes on Social Security Benefits:
Another question you may be asking concerning Social Security is how it works with state taxes. Will you have to pay state taxes based upon your Social Security income? This is a rather complicated question due to varying rules throughout the 50 states and the fact that some states offer exemptions and credits based upon age or income.
A majority of States exempt some Social Security income from their taxes, while states such as Alaska do not tax income at all. However, there are a handful of states which tax Social Society benefits to the extent that they are at the federal level. The best way to know the specifics concerning state tax is to check with your local authorities. As with federal taxes, if Social Security is your only source of income, you are exempt from paying taxes on your benefits
Although none of us enjoy paying taxes, there is a bright side: if you are having to pay taxes on your retirement, this means you are doing well. You are receiving income from other outlets
and not relying solely on your Social Security. Even though you may have to pay some taxes, having other financial outlets outside Social Security will provide more security in the long run.
Most single people under the age of thirty don’t think that they need life insurance. Why bother? They don’t have a spouse or kids that need to be taken care of in the event of a tragedy, so it seems like a waste of money. There are a few situations, though, where life insurance would be beneficial. Here are five things to consider when making the decision.
- You have unpaid student loans. College debt is one of the biggest reasons why someone under thirty should have a life insurance policy. If something happens to you, then that debt might get passed on to your family, especially if they cosigned on the loans. A life insurance policy would help to settle the debt.
- Coverage is cheaper when you’re young. Life insurance policies are usually based on the health and age of a person. If you sign up while young and in good health, you might be able to lock in coverage at a lower rate.
- You have credit card debt. Most young people are working on establishing credit, and sometimes it can get a little out of hand. Just like with student loans, if something were to happen to you, your family might be responsible for paying off your creditors.
- You want a loan for a small business. Sometimes a life insurance policy can make getting a business loan a little easier, because the loan is protected by the policy and can secure the debt.
- You have aging parents who depend on your income. If you are the primary income provider for your parents, siblings, or anyone else in your family, then life insurance is as important as to you as it would be to a parent with kids.
Life insurance is something that we never want to think about, but it’s important that you consider your options, not just for yourself, but for your family.
Buying and selling a home is a big deal. There are so many things to consider and work out before you can finally close the deal. This process becomes even more complicated when potential or present homeowners realize that if they are not careful, they could become the victims of real estate scams. Although different attackers use different techniques, they all have the same objective: to walk away from the deal with a handsome profit. Whether you are buying a home or need help paying your mortgage, below are several common scams you need to know about.
1. Timeshare Resale Scams
Oftentimes when owners of a timeshare decide it is time to sell, there are obstacles. Vacation homes can be difficult to sell especially if they are in a location not frequently visited. In the end, most vacation homes sell for a small percentage of what the home was originally worth.
When you become desperate to sell your vacation home, this is the time frauds can step in and take advantage of your situation. Many scammers will con you with promises that they will find the perfect buyer for your home if you are willing to provide a specific fee. In turn, the scammer will disappear, take your money and leave you with no potential buyers or they will tell you they need more money to reimburse what the seller initially lost.
In order to avoid such a situation, make sure to check the background of the person who could potentially sell your timeshare. Additionally, if upfront fees are mentioned, this should be a red flag for a potential scammer.
2. Real Estate Listing Scams
Believe it or not, all the property you see listed may not be for sale. A good scammer can even from time to time allow potential buyers or renters to view a home which is not even available. It is easy for a scammer to put a fraudulent listing up or manipulate real estate advertisement in order add their information. No matter how this scam is formatted, frauds can successfully collect from people who vulnerably fall prey to these scams. Always make sure to be wary of sending money to a real estate or individual whom you have never met face to face.
3. Credit Repair Scams
If you are seriously considering renting or buying, raising your credit score is very important. Such an act can help you receive a better interest rate on your mortgage. Also, in some cases, a bad credit score could potentially hinder you from being able to successfully rent.
Although you may be desperate to lower a bad credit score, be wary of the scammers who prey upon those in need of credit repair. Often scam artist will try to persuade you to create a new identity or even convince you that you are the victim of identity theft and drastic measures need to be taken in order to remove the black marks from your credit history. Others will even promise to wipe your bad credit clean immediately. When bought into, such scams can result in issues greater than a bad credit score.
4. Mortgage Relief Scams
For those who worry about meeting their mortgage and fear a foreclosure looms in their future, there are legitimate organizations such as Home Affordable Refinance Program (HARP) and the Home Affordable Modification Program (HAMP) who help struggling homeowners. However creative thieves can take advantage of desperate homeowners.
Scammers looking for people worried about losing their homes often use the line that if you let go of the title to your home and let someone else rent out the house, it will work to your advantage until you can buy your house back. Another scam often used is convincing you that they can talk with your mortgage lender to negotiate a modification to the terms of your loan. Some thieves will even use the line that if you turn over your home while you try to apply for another loan, your chances of avoiding foreclosure are decreased.
As stated before, the best way to avoid such a scam is to ignore anyone asking for an upfront fee and also do your research into their backgrounds.
5. Dual Agency
A real estate agent or agency who represents the buyer and the seller can be tricky. In some states this is quite legal and has benefits such as convenience and can even help cut costs. Nevertheless, in some states, dual agency is prohibited and can be considered a scam. Because such an arrangement could cause a conflict of interest, this is often seen as unfavorable. In extreme cases, some dual agencies will even try to profit significantly by representing both sides of the transaction. If you decide to embark on such a relationship with your realtor, proceed with caution.
6. Emails Scams
As we all know email hackers are very common. They hack into accounts all the time and not only inhibit your ability to send emails, but they also send scam emails to your family, friends, and coworkers. The same is true with real estate agents. Often times hackers will access a realtor’s account and email individuals asking them to wire money. While professionals try to avoid such happenings by taking precautionary measures such as frequently changing passwords and avoiding unsecure wi-fi, accidents do happen. If you feel an email you have received is not from a real agent, check the verification of their license and find out as much as you can about their professional records.
7. Identity Theft
Identify theft on a real estate level can take many forms. One form can occur when a thief steals the identify of a homeowner in order to gain access to their title. After this, the thief will attempt to profit off the home or tap into the home’s equity. Additionally, an identity thief can use false documents or someone else’s identity to qualify for a loan.
In order to avoid such a disaster, it is a good idea to check your bank statements, bills, and credit reports regularly. Such a check can help you catch something shady before it goes too far. Also, when working with a real estate agent, always make sure they are taking the necessary precautions to ensure your information is kept private.
Although there are many scams out there to which homeowners are susceptible , there are precautions you can take to avoid disasters. By proceeding carefully, and doing thorough research, you can outsmart any scam artist who comes around.