When you order something online, does the retailer charge you sales tax? Do you pay attention to that?
I haven't always.
Online purchases and sales tax
After we became Amazon Prime users, our online internet orders went waaaaaay up. That free shipping will getcha every time. That year, my husband and I sat in our CPA's office, as oblivious to most tax things as, unfortunately, every other year.
I don't like clutter at all, but it's oh so easy for stuff to build up and get out of control — especially when it comes to paper. If you really like everything to be neat and tidy — but you don't want to spend your life managing the mess — read on.
The Problem With Paper
I dream about going paperless. But the fact is that there are still occasions when I need actual documents to prove my existence, prove what I've earned, or prove that I spent my hard-earned cash on whatever.
The problem with paper records is that they come in one at a time, from different sources. That means that they could end up in my car, my wallet, my jacket pocket, or my desk at home. Making sure they all end up in a central location that keeps them safe and still accessible whenever I need them is a bit of a chore.<
Presumably, it has been a little more than a month since you submitted your tax return for 2014. Did you end up owing the IRS or did you get a refund? There are plenty of personal finance articles that discuss the pros and cons for each of these situations. So we will skip those discussions and go right to the point: Are you happy with your result?
If not, you can easily fix it for next year by adjusting your withholding now. But it's a simple step many people forget to take.
Now or Next Year?
For example, if you got a refund this year but would rather have more money each month to help your cash flow, adjusting your withholding now could fix that. On the other hand, if you wait or forget, you lose the benefit of better cash flow for the rest of the year.
As we finished up our tax return this year, it turned out that we owed. Great. We don't have to scrape the money together. We had planned for the extra liability when an unexpected consulting gig came together for my husband at the end of 2014. But nonetheless, it stings when you have to write a check to the Internal Revenue Service. (And besides, you just want to keep your hard-earned money for yourself!) But I was astonished with what happened next — because the solution came from yours truly and not my MBA-husband.
“You know, we can open an individual retirement account (IRA) and potentially reduce our liability,” I said. I practically turned my head around to see who uttered the words. (I think he actually did too!) My husband and I are newly married and our joint tax life is still pretty new. Last year when he prepared our first joint tax return, I happily checked out of the process leaving it entirely to his capable hands.
So what was different? About two years of reading personal finance articles day in and day out -- total immersion. This year, I didn't check out of the process. I participated in a supportive kind of way (meaning I was there to provide sustenance, moral support, hand over the appropriate paperwork at the appropriate time, and listen to his mutterings. Doesn't everyone mutter as they prepare their taxes?) But even though we knew we would owe going into it, when he came to the end and it became clear we owed that much, we were crestfallen.<
Etsy, TaskRabbit, Uber, AirBnB, and numerous other technologies make earning a little extra income (or even a full-time income) easier than ever. Almost anyone can be a micropreneur these days, even if they started out just pursuing a hobby. The sharing economy or peer-to-peer economy is growing at a record pace by leveraging disruptive technologies. But a lot of people don't seem to understand how the sharing economy can impact their taxes, and the IRS has never issued any official publication regarding how to deal with the income and expenses from these new ventures. I can't cover every single aspect of tax law and how it applies to the sharing economy in this article, but here are some tips to get you started in the right direction.
- Any income is income. It's kind of sad to realize that this point needs to be made; but it is clear from my last tax article that not everyone thinks that all income should be declared. So let's get this one out of the way to begin with -- ALL income, in whatever form you get it, has to be reported on your taxes. If not, it is tax fraud. That's about as straightforward as I can be about the income part of this equation.
- Estimated tax payments. No one is collecting taxes regularly on the income you make, so it is your responsibility to estimate your tax liability and pay it quarterly. At the end of the tax year, if you owe taxes and you didn't pay quarterly estimated tax, you might owe both penalties and interest payments along with your tax liability to the IRS. It is a good idea to keep those funds separate in your online savings account so they are available when you need them every quarter.
- You are your own employer. You can set your own hours, great! It also means that you have to pay the self-employment taxes, including the employer's part.
- Understand your tax forms. Depending on the technology you are using, you might be getting a 1099-K (AirBnB) or a 1099-Misc. (Uber) -- but you might not get any tax form at all. Whatever form you get (or don't), the income still has to be reported.
The 1099-K became more commonplace as PayPal started issuing one to all the self-employed folks who used Paypal as a payment medium. AirBnB will send you a 1099-K if you rent out your room more than 14 days in a year. The 1099K is a form merchants use to report payments received via debit cards, credit cards and other third-party payment systems like PayPal.
The 1099 Misc. is used to report income earned by freelancers. Uber treats its drivers as independent contractors, so they issue a 1099 Misc. form. You will most likely be using Schedule C (unless you have incorporated a business and are not channeling your income via personal tax return) to report income you earned and expenses you incurred from your micropreneurial ventures. The Schedule SE is used to calculate your self-employment taxes.
- Keep all the records. You owe taxes on every dollar of income; and, likewise, you can also deduct every dollar of eligible business expenses. Here are some sample deductions that are available for different types of services (note that some of these expenses have to be depreciated over time and it also has implications when you sell your asset -- house or car):
Rideshare service expenses
- Mileage (standard rate or actual cost)
- Parking fees, tolls
- Car-loan interest (or lease payments)
- Cell phone services
- Any advertising costs
- Car-cleaning costs
- Car insurance (the business-related portion)
- Maintenance costs
- Registration and taxes
- In-car entertainment
Home-sharing service expenses
- Rent or mortgage
- Professional cleaning services or cleaning supplies (if you clean the home, you cannot deduct the monetary value for your time; you can only deduct the money you spent on the cleaning supplies)
- Utilities (electricity, cable, internet, sewer, etc.)
- Food provided for your guests
- Insurance (the business-related portion)
- Repair costs, grounds-keeping expenses, replacement items (for example: worn-out bulbs in the rental room)
- All the host-related service fees like AirBnB's guest services fees (6 to 18 percent) and host-service fees (3 percent). Uber's commissions are fully deductible.
When I was in my 20s, I was single, without kids, renting, had graduated from college, working at my first job and no interest whatsoever in taxes. My feeling was, Why should I waste time thinking about taxes? As a single, renter with no kids, I would get absolutely no deductions or credits -- and in addition to that, I had nothing to itemize. That meant I should have just filled a 1040EZ and been done with it, right? Right?
Most of us who are starting our financial journey think this. It is not always true. The assumption that paying attention to taxes at this stage provides little benefit, can result in us losing out on a lot!
That is why I decided to write this post, focusing on people in their 20s -- to get their attention, and to tell them there are reasons to take a second look at their taxes (though taxpayers of any age can equally take advantage of these deductions/credits).
As an active-duty military member, preparing and filing your tax return can be a nightmare. Regardless of your duties or where you're stationed, tax season will cause you to stop what you're doing to complete this important task.
However, Uncle Sam has taken into account your unique lifestyle with special tax laws. These include the extension of deadlines for filing and paying taxes while on active duty in a combat zone. But did you know that there are quite a few military tax deductions and credits that are hardly claimed?
Over the past 12 months, I have used credit card rewards to finance the bulk of our trips to Jamaica, Las Vegas, Denver, New Orleans, London, Paris, and St. Maarten. And in the process, I've also cashed in a five-figure sum of hotel loyalty points, airline miles and rewards. Of course, I blame part of this on my love of family travel, but it also has to do with how I make a living. Since I'm a points-and-miles blogger for Frugal Travel Guy, it would be pretty weird if I never went anywhere.
Aside from the questions I hear about earning points and miles and booking award travel, I get a lot of questions on the financial aspects of these trips. Are credit card rewards counted as taxable income? How about bank bonuses? If the fine print isn't all that specific, how can I tell?
Are Bank Bonuses Taxable?
We've all gotten at least one of these offers in the mail. They say something like, "Open a new savings account with XY Bank and receive a $300 bonus after setting up direct deposit" or "Earn a $250 bonus after making 10 qualifying transactions with your bank debit card."
In my homeownership and priorities progress report in September, I mentioned that Jake and I were considering getting solar panels installed on our new house. Although that was our last priority, our first priority was replacing our HVAC unit. We thought there might be HVAC units that were made to be compatible with solar panels.
As a result, we decided that it might make sense to investigate solar panels sooner rather than later. That would give us a better sense of our timeline as well as help us determine how much cash we needed to start stashing away in our savings account. Here's what we found out.
Getting Our Home Assessed
The first step was to have someone from a solar panel installation company assess our home. This was free because they simply want your business. They look at factors like:
Today I present the second and final installment of my property tax saga -- the informal hearing. (You can check out the first post here.)
To briefly recap, I'm a new homeowner and my assessed property value shot up by 31 percent from last year. So that, along with the fact that I have a tax-protesting father to please, landed me in County Appraiser Brad's cubicle for an informal hearing.
The bad news<