Out of the fifty states, only nine do not impose any income tax on its residents.  Florida is one of them (one of the reasons I live here).  So should you move over to live in one of these states?  Well, that depends on your lifestyle.  You see, if the states do not tax your personal income, they have got to derive their revenue from somewhere.  So in Florida and the other eight states, taxes come in the form of property, sales, business and other taxes.

Want to know which states do not tax their residents' personal income?  Read more about the nine states with no income tax.

Filed under IRS News by  #

Do you know how to use a Flexible Spending Account to save on your taxes?  Do you know the difference between a Roth 401 (k) and a traditional 401 (k)?  Well, if you couldn't answer either of the two questions correctly, you're not alone.  The majority of 1,000 Americans who took a tax quiz by NerdWallet could not, either.

Don't brush off the advantage of knowing more about tax laws.  It could save you a pretty sum in taxes.

Want to see how much you know about the US tax code?  Take the NerdWallet Tax Quiz and find out.

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When you sell a property, you will normally make either a gain or loss.  This is called capital gains or loss.  If you make a capital gain, you are liable to be taxed on the profit.  But did you know that the property concerned is not limited to only houses or lands?  If you sell a vehicle or stocks and bonds and make a profit, you may also be liable for capital gains tax.

Also, did you know you are allowed to claim a deduction from your taxable income if you make a capital loss on the sale of your property?  But there is a caveat to this.  The property must be for investment purposes, not personal use.

These are just some of the facts about capital gains and loss you may not know of but should.

 

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If you are paying taxes for the first time, there are a few things you should consider.  For one, you must decide on which filing status you fall under.  There are three statuses you may be under if you are an individual – Single/head of household, Married filing jointly with spouse and Married filing separately from spouse.

Then there is the frequency for paying your taxes.  Most American wage earners authorize their employers to withhold a certain amount from their paychecks each month for taxes.  Otherwise, you may choose to pay quarterly.

Finally, there's the question of who should file your taxes for you or should you file it yourself.

Here's an article on some of these matters and in particular who should do your taxes – http://www.usatoday.com/story/money/personalfinance/2015/02/22/adviceiq-options-for-filing-taxes/23794703/

 

Filed under Tax Planning by  #

You fill in a W-4 each time you start a new job.  Using your W-4, your employer calculates the amount of withholding to apply to your paycheck each month.  If you withhold too much, the IRS refunds you the excess at tax season each year.  If you withhold too little, you have to pay the IRS the difference.  Most Americans withhold too much.  That is why the average amount of refunds per taxpayer based on last year's taxes collected is $2,847.

Obviously you should not be paying Uncle Sam more than you are taxable.  To change the amount of withholding, you need to change your W-4.  Most of us forget to make the necessary changes after a significant life event that may reduce your taxable income such as the birth of a child or getting married.  That is one main reason why we pay too much withholding.

So should you reduce your W-4?  Naturally, you should consider changing your W-4 only if you are paying too much withholding.  Reducing your W-4 means reducing the amount of refund you receive each year.  Getting a lump sum refund of about $2,847 sounds good but actually, it's the amount your should not have paid the IRS in the first place.  So deciding to reduce your W-4 should depend on what you would do if you do not receive a refund.

Consider how much your monthly income would be if you did not withhold the $2,847.  It would immediately increase by $237.25 per month.  If you are not the type of person that can discipline yourself to spend the $237.25 wisely or better still, save the entire amount each month, then it's better if you do not change your W-4.   It's better to let the government take a little more every month and refund it back to you at the end of a year than you spend it all on unnecessary things.   After all, if you can get by with the withholding at your present amount, it means you do not need the extra $237.25 anyway.

Then when the government refunds it to you in one lump sum of $2,847, you could use it for something beneficial like paying off your credit card debts.  The only thing you would lose out on is the interest on that $2,847 each year.  But that may be a small price to pay for not allowing yourself to fritter away your hard earned money.

If you do decide to reduce your W-4, I'd like to suggest two things you could do with the extra $237.25 each month.

Firstly, you may want to start a 401(k) to save for your retirement.  At 6.5% compound interest, your monthly savings of $237.25 per month could end up being more than $3,000 in one year's time.

Secondly, pay off your debts.  Most of us have credit card debts.  Paying $237.25 per month towards your credit card is a good practice.  If you have a credit card balance of $2,500, a monthly payment of $237.25 could pay off your entire balance within one year.

So be wise in deciding whether you should make changes to your W-9.

Filed under Tax Planning by  #