Surviving - Flagstar Bank

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become common enough so that there's no need to fear it. Just make sure your claim falls within the IRS definition of a
Surviving Tax Season

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Surviving Tax Season

Table of Contents Section I: Page 2 The Top 10 Tax Myths

Section II: Page 7 Tax Deductions You Might Overlook

Section III: Page 10 Save the (Tax) Dates

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Section I

Top 10 Tax Myths

Section I

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The Top 10 Tax Myths Tax filing season is confusing enough. It becomes even more so when listening to friends and family about what is—and what isn’t—okay when filing out your tax forms. Deductions, loopholes and write-offs can all get you into hot water if you follow bad advice. Here are the most common tax myths and some suggested ways to protect yourself from misinformation: 1. Filing taxes is voluntary Just because the Form 1040 instruction book describes the tax system as “voluntary,” this doesn’t mean you have no legal obligation to file. The term voluntary refers to the fact that you are responsible for determining the correct amount of tax you owe. It has no relation to whether or not filing taxes is an option. Unless you have a legitimate dispute, trying to parse words with the IRS and contesting the payment or filing of taxes is never a good idea. 2. You can claim pets as dependents No matter how much you love your pets, you can’t claim them as dependents. While there’s no denying that pets do meet the requirement of getting more than half their financial support from their owners, there’s still one small technicality: they’re not humans. Falsely claiming a dependent is considered fraud and should be avoided at all costs.

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The Top 10 Tax Myths, cont’d. 3. The IRS is legally obligated to file a return for you The IRS does have the right to verify your return, but waiting for them to file your return is a bad idea. They’ll most likely file a judgment for unpaid back taxes instead! This myth may stem from language that suggests the IRS can compile a return on your behalf if they suspect fraud. Bottom line, you’re never off the hook from having to file your own tax return. 4. Illegal activity is not taxable As counterintuitive as it seems, breaking one law doesn’t have any impact on your ability to break others. Income acquired through illicit activity is still taxable. As long as you’re making money, the government is still entitled to their share. So no matter how well you cover your tracks when it comes to illegal activities, cheating on your taxes can come back to bite you. Just ask Al Capone. 5. Home office deductions prompts an instant audit There was a time when this myth was actually close to truth. However, with home offices becoming increasingly prevalent, this one-time fact has become predominantly fiction. Although claiming a home office increased scrutiny, the deduction has become common enough so that there’s no need to fear it. Just make sure your claim falls within the IRS definition of a home office. Section I

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The Top 10 Tax Myths, cont’d. 6. Students don’t have to pay taxes This myth is actually partially true. As a student, you’re not required to pay taxes if you earned less than $9,000 during the 2017 tax year. However, it’s typically in your best interest to file taxes anyway. If your employer withheld money for tax purposes, you’re most likely due a refund. 7. Money made over the Internet is tax free This myth is just plain false. Just because you aren’t filling out a W-9 and having your online income reported to the IRS, doesn’t mean you don’t have to claim that income. In the eyes of the IRS, money made online is no different than income earned offline. If you sell a product or service and end up making more than $400 in 2017, you’re required to declare that income on your tax returns. 8. I don’t make enough money to get audited Income has less to do with being audited than you might think. There are many other factors involved that can send up red flags. Individuals with income exceeding $100k will tend to get audited almost twice as often, but there is still a one-percent chance of getting audited if you fall beneath that threshold. The best thing you can do is to maintain detailed records of anything that might be considered a questionable deduction. Saving relevant receipts for a three-year period can help eliminate headaches should you find yourself facing an audit.

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The Top 10 Tax Myths, cont’d. 9. My accountant is liable for any mistakes Whether or not you hire an accountant, you’re still ultimately responsible for mistakes on your return. Because of this, never assume your accountant has taken care of everything. Take time to double check your return before it’s filed. In many cases your accountant will help you through the auditing process if you’re unfortunate enough to be questioned. The bottom line is, it’s your return. You signed it, and you’re the one the IRS will be coming after. 10. I don’t have time to do my own taxes There are numerous tax preparation options available today that make filing taxes easier than ever—including software programs and online filing. Although no one enjoys filling out tax forms, “I don’t have time” is never a valid excuse. If you do have extenuating circumstances, you can always request an extension prior to the tax-filing deadline. Intuit, TurboTax

Section I

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Section II

Tax Deductions You Might Overlook

Section II

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9 Deductions You Might Overlook If you itemize your return, maximizing your deductions can make a huge difference in your tax obligation. Few things are more painful than realizing that you forgot to include a deduction that would have lowered your tax bill or increased your refund. While the new tax code promises to change how deductions are calculated in the next tax year, you don’t want to overlook these deductions which are still allowed on your 2017 forms: 1. Sales taxes You have the option of deducting sales taxes or state income taxes off your federal income tax. In a state that doesn’t have its own income tax, this can be a big money saver. Even if you paid state taxes, the sales tax break might be a better deal if you made a big purchase like an engagement ring or a car. You have to itemize to take the deduction, but the IRS provides tables to use as a guide. 2. Health insurance premiums Medical expenses can blow any budget, and the IRS is sympathetic to the cost of insurance premiums—at least in some cases. Deductible medical expenses have to exceed 7.5 percent of your adjusted gross income to be claimed as an itemized deduction for 2017. However, if you’re self-employed and responsible for your own health insurance coverage, you might be able to deduct 100 percent of your premium cost. That gets taken off your adjusted gross income rather than as an itemized deduction.

Section II

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9 Deductions You Might Overlook, cont’d. 3. Tax savings for teachers It’s the rare teacher who doesn’t have to reach into his or her own pocket every now and then to purchase items needed for the classroom. While it may sometimes seem like nobody appreciates that largesse, the IRS does. It allows qualified K-12 educators to deduct up to $250 for materials. That gets subtracted from your income, so you can take advantage of it even if you don’t itemize. 4. Charitable gifts Most taxpayers know they can deduct money or goods given to charitable organizations, but are you making the most of this benefit? Out-of-pocket expenses for charitable work also qualify. For example, if you make cupcakes for a charity fundraiser, you can deduct the cost of the ingredients you used to bake them. It helps to save the receipts or itemize the costs in case of an audit. 5. Paying the babysitter You might be able to deduct the cost of a babysitter if you’re paying her to watch the kids while you volunteer to work for no pay for a recognized charity. The Federal Tax Court has ruled that it’s OK to list the cost of a babysitter as a charitable contribution on your return, if you can document that while she was performing her duties, you were volunteering.

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9 Deductions You Might Overlook, cont’d. 6. Lifetime learning The tax code offers a number of deductions geared toward college students, but that doesn’t mean those who have already graduated don’t get a tax break as well. The Lifetime Learning credit can provide up to $2,000 per year, taking off 20 percent of the first $10,000 you spend for education after high school in an effort to increase your education. This phases out at higher income levels, but doesn’t discriminate based on age. 7. Unusual business expenses If something is used to benefit your business and you can document the reasons for it, you generally can deduct it off your business income. A junkyard owner, for example, might be able to deduct the cost of cat food that encourages stray cats to hang around and keep the mice and rats away. While clarinet lessons are not usually deductible, they could be if they are part of an orthodontist’s regimen to help deal with an overbite. Then they may be deductible as a medical expense. In this case, both the cost of the clarinet and the lessons may be deducted. 8. Looking for work Losing your job is traumatic, and the cost of finding a new one can be high. But if you’re looking for a job in the same field, you itemize your deductions, and these expenses exceed 2 percent of your adjusted gross income, any qualifying expenses over that threshold can be deducted. It may seem like a high bar, but those costs add up quickly—consider deducting the mileage you put on your car driving to interviews and the cost of printing resumes. Section II

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9 Deductions You Might Overlook, cont’d. 9. Self-employed Social Security The bad news about being self-employed: You have to pay 15.3 percent of your income for Social Security and Medicare taxes, the portions ordinarily paid by both employee and employer. But there’s one small consolation—you do get to deduct the 7.65 percent employer portion off your income taxes. Intuit, TurboTax

Tax credits vs. deductions Tax credits and tax deductions may be the most satisfying part of preparing your tax return. Both reduce your tax bill, but in very different ways. $1,000 Tax Deduction $1,000 Savings Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. A tax credit valued at $1,000, for instance, lowers your tax bill by the corresponding $1,000.

$1,000 Tax Deduction $250 Savings Tax deductions, on the other hand, reduce how much of your income is subject to taxes. Deductions lower your taxable income by the percentage of your highest federal income tax bracket. So if you fall into the 25% tax bracket, a $1,000 deduction saves you $250.

Nerdwallet

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Section III

Save the (Tax) Dates

Section III

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Save the (Tax) Dates Here are some important tax dates and deadlines to keep in mind for 2018: W-2s and 1099-Misc start to arrive: January 31, 2018 You should start seeing your W-2s and 1099s arrive in the mail. 1099DIVs could arrive as late as February 28, 2018. Tax year 2017 tax deadline: April 17, 2018 It’s the big day! Individual tax returns are due for Tax Year 2017, so be sure e-file or postmark your individual tax returns by midnight local time. The regular tax return filing deadline is April 15. However, due to April 15 being on a Sunday and the Washington D.C. Emancipation Day holiday being observed on April 16, Tax Day is on the following Tuesday. Last day to make a 2017 IRA contribution: April 17, 2018 It’s not just Tax Day! If you haven’t maxed out your IRA contribution for 2017, you can make contributions to an IRA by April 17, 2018, to lower your 2017 taxable income! Deadline for filing extension: October 15, 2018 If you have filed a request for an extension (by April 17, 2018), your completed return must be filed by October 15, 2018 to avoid penalties.

Section II

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Let us know if we can help Flagstar Bank encourages customers to talk with their accountant or tax attorney as to the deductibility of expenses. To help you budget or plan for the 2018 tax year, please contact a Flagstar Bank representative. flagstar.com/locations (888) 248-6423 This article is intended for informational purposes only. Flagstar Bank always advises its customers to consult with their accountant for confirmation on possible deductions.

Section II

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