Tag Archives: taxes

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Tips for the Tax Filing Procrastinator

Here’s some good news for all you tax filing procrastinators out there: Tax Day has been pushed back three days this year.

No joke—because Emancipation Day is being observed on Friday, April 15 this year, Tax Day has been moved to the following Monday, April 18.

So what will you do with these three extra days? That depends on your level of procrastination, of course. Here are the three most important things to consider if you’re filing your taxes at the eleventh hour:

  1. Do you owe money to the IRS or does the IRS owe you a refund?

If you don’t owe any money to the state or Federal government, then the April 18 deadline doesn’t apply to you. Yes, you heard that right. You will not incur a late filing penalty on your taxes if you’re owed a refund, so take a deep breath and stop stressing out. BUT (and this is important for people prone to procrastination) the longer you wait to file your taxes, the longer it will take to receive your refund. On top of that, you run the risk of becoming a victim of tax fraud the longer you wait to file, which is why we suggest filing as soon as you can. (If you file your taxes early, a fraudster can’t do it before you.)

  1. File an extension / Ask for payment installment plan

If you do owe the IRS money, you will incur late filing penalties on that amount unless you file for an extension. Even if you file for an extension, you will incur late payment penalties unless you pay at least 90 percent of your tax liability by April 18. Luckily, the process is fairly easy—fill out Form 4868 online or by mail and your new deadline will automatically be extended to October 17. Also, if you file on time but don’t think you’ll be able to pay the owed balance by the original deadline, you can request a short-term extension to pay the balance due or request an installment payment plan. This process requires a request be made by the deadline (check to see if your state requires a separate extension), but will give you time to get your finances in order.

  1. Don’t rush

The worst thing to do is try to beat the deadline without filing for an extension. Chances are you’ll overlook critical deductions and credits that may lower the amount you owe or increase your refund. There are a slew of life events that can affect your tax situation (e.g., marriage, divorce, starting a business, having a baby, etc.) and it would be a shame to ignore them, especially when it means more money coming out of your pocket.

For more info on how to avoid penalties that come along with missed tax deadlines, visit our Block Talk blog. In order to prevent winning the two-time tax procrastinator award, check out this handy infographic to find out what forms you’ll need, along with a tax prep checklist for next year’s prompt filing.

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New Jersey Mother, Son On H&R Block Winning Streak

They say lightning doesn’t strike twice, but for Lower Cape May High Regional School student Isaac Whitmore and his mother Marilyn Reyes, it does. Whitmore won a $20,000 scholarship from the H&R Block Budget Challenge and is in the running to win the grand prize $100,000 scholarship. Meanwhile, his mother won $1,000 as part of the H&R Block 1,000 Win $1,000 Daily Sweepstakes after filing her taxes with H&R Block.

We spoke to the lucky duo about plans for their winnings and financial literacy education overall.

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How did your family react when you told them you had two H&R Block winners in the family?

Marilyn: I posted about it on Facebook and everybody was really excited. I think I ended up posting about Isaac’s win first and then mine. It happened within a week of each other and everyone was saying, “This is your week! This is your month!”

What was your reaction when you found out you won the sweepstakes? 

Marilyn: My thoughts when I entered the sweepstakes were “I don’t ever win anything, but I’ll try.” I’m not a lucky person at all. So when I won I was excited and so happy. I still am!

What did you do with the $1,000 you won?

Marilyn: I shared it. Gave some to my son, gave some to my mother and I paid some bills.

Do you and Isaac talk about finances and money at home?

Marilyn: We usually don’t. I stink at budgeting but he definitely knows how to save money.

Isaac, where did you learn how to save?

Isaac: Honestly, I don’t know. It doesn’t seem like a set of skills that you have to learn. It seems like common sense. Just don’t overspend and that’s what I did in the Budget Challenge. Some people in my class didn’t try or said it was confusing and I just used my common sense.

Marilyn: I pay my bills, but I don’t like to save money!

Were you excited when your teacher announced your class would be taking the Budget Challenge?

 Isaac: My friends and I were talking about how cool it would be if we won first place, and I thought it’d be cool, but what are the odds? When I first played, I played it really nonchalantly and then I started playing seriously after about a week.

Did you tell your mother you were participating in the Budget Challenge? What did she think of it?

 Isaac: I actually didn’t tell her until I knew I was going to win. She didn’t know I was playing a game until a week after the game was over.

 Marilyn: I was kind of like, “Why didn’t you tell me?” He wanted to wait to make sure he was a winner. He’s very good with numbers and once he applies himself he definitely goes for it. I told him to give me a heads up! I wanted to be excited and by his side even if he didn’t win.

Marilyn, you mentioned Isaac is good with numbers? Is that something he gets from you?

Marilyn: I’ve always loved math and he definitely gets that from me.

What was your reaction when you found out you actually won an H&R Block Budget Challenge scholarship, Isaac?

Isaac: I was really excited. I was more excited at the fact that I got first place. Out of 22,000 people, only 22 people win and I happen to be that lucky person.

Marilyn: I was super excited. Not only because of the fact that he won, but just the thought alone that my son is getting the opportunity to even go to college.

How has winning the scholarship changed your education plans after graduation?

Isaac: It definitely makes it easier because now I don’t have to worry about all the extra expenses. It feels like a lot of weight has been lifted off my shoulders.

Do you have any tips or tricks for how you performed so well in the simulation?

Isaac: The Budget Challenge comes with a budgeting spreadsheet, and it helped me keep track of my bills so I wouldn’t miss a payment or a bill. It also helped me manage all my money. Another tip was to check my emails frequently because in the game, you’re only notified of the unexpected events via your email. I checked it frequently because I didn’t want to miss anything.

Do you see a need for financial literacy education in your community?

 Isaac: Yes, very much so because I see many of my friends spend their money on useless things they really don’t need to be buying. You can easily save your money and spend it on something more useful.

Do you think this type of education should be required in schools?

 Isaac: I think all schools should teach it because not all parents know about financial literacy or education. The Budget Challenge teaches real-world skills; some things you learn in school might not be applicable to real life, but financial education, that is something you’ll use for the rest of your life.

Marilyn: I wish I had that when I was in high school!

Isaac, do you think the skills you learned in the Budget Challenge have put you in a better position for when you enter the real world?

 Isaac: One hundred percent. I’ll be able to apply budgeting in the real world because now I’ve gotten to practice.

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Teens & Taxes: Spring Is Coming! But So Is Tax Day

Punxsutawney Phil’s declaration this morning that we’re in for an early spring may have you thinking of frolicking through dewy meadows, but don’t let that distract you from the upcoming tax deadline.

For 2016, that date remains fixed as April 18, despite what any rodent has to say about it.

With that sobering reminder, it’s a good idea for teens to learn the tax basics while still cooped up indoors. In the event your teen needs to file a return, getting the work done now during the winter months so one can relax in spring is a good idea.

Here are five important facts to help you understand taxes:

1.    What exactly are taxes?

Taxes are imposed on citizens by federal and state government bodies to finance various public services, such as transportation and infrastructure (think highway maintenance) and Social Security (monthly benefits to support the retired or eligibly disabled and their families) among other safety net programs. In essence, taxes help to support the country we live in.

2.    What’s the deal with Tax Day?

The chatter around Tax Day deals specifically with income tax, which is money deducted from paychecks and other forms of earned income, like investments. Typically on or before April 15, Americans must file a tax return, which notifies the government how much money individuals have earned over the past year and how much they’ve already paid the government through taxes. If you’ve paid more than required, you will receive a refund from the government. If you haven’t paid enough, then you’ll have to fork over extra cash.

3.     How did this all come to be?

A federal income tax was first imposed in the 1860s when the government needed money to fund the Civil War. Congress repealed this in 1872, but subsequent iterations of a federal income tax were imposed in large part to fund our military for protection from enemy nations. In 1913, the Sixteenth Amendment of the United States Constitution was ratified, decreeing Congress’s right to impose a Federal income tax.

 4.    Is paying taxes voluntary?

Simple answer: NO! Although the U.S. income tax system is defined as a voluntary system, reporting income your income to the IRS is mandatory. If you’re an income-earning resident of the United States or a nonresident with taxable U.S. earnings, you are required to pay your tax liability. No one is immune, not even the powerful and dangerous. Sure, Al Capone could get away with organized crime activity, but he couldn’t escape tax evasion. If you don’t pay the government, they will find out and collect their money, often with penalties and interest. In the most severe cases, criminal action can be taken against delinquents.

5.    But do I have to file a tax return?

Good question. That depends primarily on your age and income, along with some other factors. If you worked a job and had money taken from your check, you should file one because you may get money back. Read this earlier Dollar & Sense blog post for a more detailed explanation of whether or not teens have to file a tax return.

Understanding how to file a tax return can be complicated, which is why it’s beneficial to gain an understanding of the basics early on. It may not be everyone’s favorite, but it could be worse. You could be a groundhog tasked with crushing the warm-weather dreams of an entire country.

How Important is Money to Teens? [INFOGRAPHIC]

How important is saving, spending and investing to teens? Here’s what we found out.HRBDS January-0204-02-01

Thanks to the Budget Challenge, these teens gained confidence in their financial literacy skills and ability to save. Maybe they can keep their smartphones after all!

Learning financial literacy is fun with the H&R Block Budget Challenge. To find out more about how your teenagers or students can learn real-world money management skills without the real-world consequences, encourage teachers to register here for the next H&R Block Budget Challenge simulation.

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Does My Teen Have to File a Tax Return?

With the deadline to file tax returns three months out, and what accountants refer to as “busy season” more than a month away, you may be wondering why we chose now to discuss tax returns.

No, it’s not to stress you out. In fact, it’s quite the opposite.

A little preparation now will go a long way in making your life easier come busy season — especially if your teenager recently entered the workforce in 2015 with a summer or part-time job.

There are several somewhat confusing rules that will determine whether or not your teen needs to file a tax return, so let’s start with the basics.

Is your teen a dependent?

Your child is your dependent if the child lived with you for more than half the year, did not provide more than half of their own support, and they were under 19 years old on Dec. 31. A child under 24 years old who isa full-time student or a child of any age who is permanently disabled may also be a dependent. In most cases, if your teen is a dependent they will not be required to file a tax return. But there are exceptions.

How much did your teen earn this past year?

Even as a dependent, your teen may have to file taxes depending on their yearly earnings. For instance, if their earned income is more than the standard deduction, then they must file. Standard deduction amounts can fluctuate from year to year, so check with the IRS for the most accurate figure.

Alternatively, if your teen has unearned income from dividends, investment gains, or interest that totals more than $1,050, they will be required to file a tax return. (Again, consult the IRS for accurate figures)

Lastly, your teen will need to file a return if the combined values from earned and unearned income for the year totals more than the larger of $1,050 or if their earned income exceeds $5,950 plus $350.

This last part is by no means simple to understand, so it may be best to let a tax professional do the math if your teen has both earned and unearned income for the year. A tax professional can also determine if your teen was hired as a contractor rather than a “regular” W-2 employee and what that means in terms of either owing or receiving money from the government.

Learning financial literacy is fun with the H&R Block Budget Challenge. To find out more about how your teenagers or students can learn real-world money management skills without the real-world consequences, encourage teachers to register here for the next H&R Block Budget Challenge simulation.

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Breaking Down A Paycheck: Teaching Your Teen About Tax Withholding

Most teens will be earning an hourly wage at their first summer job, and they might expect that by multiplying the number of hours they work by their wage, they’re calculating the total amount that will show up on their check.

But they may be in for a not-so-sweet surprise when they open up their first paycheck to discover that a chunk of that total is missing. That’s why it’s important for teens to understand what tax withholding is, what they qualify for and where those deductions are documented before they get their first paycheck.

So, What Is Tax Withholding?

Tax withholding is that chunk of money taken out of each and every paycheck. Teens should understand where that money goes and what it’s being used for. The tax deductibles can be broken down into four parts:

  • Social Security: money that goes toward Social Security benefits in retirement.
  • Medicare: an insurance plan that provides medical benefits to Americans over the age of 65 and individuals with certain disabilities.
  • Federal Income Tax: a designated percentage of income given to the federal government.
  • State Income Tax: for states that collect state taxes, it’s a designated percentage of income given to your local government. (This percentage varies from state to state.)

What Do Teens Have to Pay?

Two payments every teen is required to make no matter the size of income are Social Security and Medicare. These will always be taken out of their paychecks. Things get a little trickier when it comes to determining whether your teen will owe federal or state taxes.

Teens earning less than $6,300 over the course of the year may claim an exemption from income tax withholding by giving the employer a new Form W-4, and won’t have to pay those taxes. However, if your teen has unearned income (interest or dividend income, for example) that threshold is much lower. Also, if income taxes have been withheld from a teen’s paycheck, that teen will need to file a tax return to get a refund. Sitting down with your teen and calculating their projected annual income will allow you both to learn whether federal taxes must also be taken into account.

Unlike federal taxes, state taxes can vary depending upon where you live. Each state can create its own tax law and have its own requirements. Check your local laws with your teen and again see if they are likely to owe state taxes.

Where Do I Find Tax Withholdings?

Now that your teens understand what tax withholdings are and if they are likely to owe taxes, they need to know where tax withholdings are documented and where they can keep track of them. This can be found on their paycheck.

These days, most companies use direct deposit so the earned income is sent directly to bank accounts, as opposed to a physical paycheck that must then be deposited at a bank. Teens must find out which form of payment their company will be using and plan accordingly. Employees using direct deposit will still have access to a paystub, even if they do not receive a paper check.

Regardless of whether they receive a paycheck or paystub, the document will contain:

  • Gross income: the amount of money earned before tax deductions.
  • Tax deduction columns: lists of the amount being deducted for each section: Social Security (often listed as OASDI, which stands for Old-Age, Survivors and Disability Insurance), Medicare, federal and/or state taxes. This is where teens should look closely and make sure only the taxes they have to pay have been taken out and nothing more.
  • Net income: the amount your teen is actually taking home in their paycheck—gross income minus withholdings.

Understanding these concepts and knowing how to read a paycheck will help your teen understand their financial standings and catch any mistakes that could cause them to lose out on potential income.

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All I Want For Christmas Is A Bitcoin

By Erin Lowry, contributor

Bitcoin seems as real as monopoly money and sounds as silly as a loonie or a toonie, except it isn’t printed in funny colors and is worth way more than $2. In fact, it isn’t even tangible. Bitcoin is a virtual currency introduced in 2009. While it may sound like a fun stocking stuffer, Santa would need to be feeling awfully generous to leave a Bitcoin.

What is Bitcoin?

Bitcon is an unregulated, non-FDIC-insured currency. Although it is not backed by the U.S. or any government or banking system, it has been slowly gaining both in popularity and acceptance. Some merchants, such as restaurants and small businesses, will accept Bitcoin in lieu of paying with cash or a credit card.

At its peak in November 2013, one Bitcoin was worth upwards of $1,200. As of this writing, one Bitcoin is worth nearly $370.

How do you get Bitcoin?

First, you need a wallet. No, not the kind you’re thinking. You need a digital wallet either on mobile, desktop, laptop or the Web.

Next, you need to acquire your Bitcoins. This can happen one of two ways.

Mining: Bitcoin uses the Internet and users’ computers and servers to offer up the computing power needed to perform the algorithms that keep Bitcoin running.

Or in slightly more simple terms: your bank uses massive data servers to perform transactions all day. Bitcoin has you. You provide your computer to the cause and are rewarded in fractions of a Bitcoin.

Anyone can do it: You just need to sign up, download the software and let your computer do the rest. But your little laptop or desktop probably won’t have the power to earn you much as a miner, so Bitcoin pools help bring resources together to earn more.

Buying: Not interested in offering up your computer to earn some Bitcoins? Not a problem. You can buy them outright on an exchange, or accept them as tender for an item you want to sell. Just be careful if you want to buy via an exchange, as there are scammers and fraudsters out there looking to take your money.

Is Bitcoin a good investment?

As a fun, speculative portion of a portfolio, sure, it’s a perfectly fine investment. But remember, Bitcoin is incredibly volatile and susceptible to hacking and scams.

In fact, Mt. Gox, previously one of the largest Bitcoin exchanges in the world, filed bankruptcy earlier this year after losing 850,000 Bitcoins. The company’s official claim was that the Bitcoins were stolen, even though 200,000 have since been recovered.

Bitcoin transactions are also irreversible and can only be returned by the person who received the funds.

Finally, there can be tax consequences to trading in bitcoin. The IRS says that bitcoin and other virtual convertible currency is a capital asset. As such, selling or trading bitcoin for “real” cash or goods can result in taxable gain.

So, if your teen wants to dabble in a unique form of finance, Bitcoin may be a great gift as long as you proceed with caution. But it might also be the only gift under the tree — in the form of a gift certificate, of course.

 

Erin-Lowry_150hErin Lowry is the founder of BrokeMillennial.com, where she uses sarcasm and humor to explain basic financial concepts to her fellow millennials. Erin lives in New York City and works for MagnifyMoney.