If you rent out a room to others using airbnb or a similar site, if you drive your car for Uber (or an alternative), or if you otherwise take part in the sharing economy, the money you earn may be taxable. (Psst: Even if you get paid in cash without any record of the transaction, you still may be liable for income tax on the earnings.) This is true whether this is a one-time thing or if you treat it like a side-gig. Plus, if you don’t earn cash but rather get something else of value in exchange (such as …Read More
Some individuals get the nice surprise of a big tax refund every tax year (if this is you, don’t be too happy – you’ve been lending Uncle Sam money interest free). Other folks get the unpleasant surprise of having to write a big check to Uncle Sam. For the latter individuals, there may be a way to lower their tax bill and save more for retirement.
Let’s look at an example. Assume an individual has a tax bill of $4,000 and they want to reduce this. Naturally, there are other deductions they may qualify for, but in this case, they’ve …Read More
In a comment on the article last week (Adjusting Withholding Saved 44% of the Tax Bill), a question came up about the taxability of Social Security benefits. It can be complicated, hopefully this explanation will help you understand taxability of Social Security a bit better.
Social Security is taxable at three different levels, based upon how much other income you have and your income tax filing status.
First, you need to calculate your Provisional Income – which is 50% of your household Social Security benefits plus all of your other taxable income, plus any tax-free income.
Next, there …Read More
Adjusting withholding can sometimes produce a surprise.
While preparing a client’s tax return the other day, the result was that he had nearly a $5,000 refund coming. Often when we have a large refund coming we think “Nice! It’s like an unexpected gift!” But as you’ll see below, this is not a gift – it’s actually costing quite a lot in taxes in this particular case.
Naturally, as in most cases like this, I reviewed his income sources and withholding to see if there was anything obvious that we could change for him that would make his withholding more efficient.…Read More
A common situation that we run across is when someone would like to make early withdrawals from an IRA or 401k plan. As you might expect, there is taxation of the money withdrawn in most cases. There can be other taxes, and certain early withdrawals can be tax-free. The nature of the taxation depends on the circumstances around your early withdrawals.
The IRS recently published Tax Tip 2017-09, which lists some important facts about early withdrawals from retirement plans. The complete text of the Tip follows below.Early Withdrawals from Retirement Plans
Many people find it necessary to take out …Read More