If you regularly have a large tax payment or large refund, you should review and adjust your withholding to be more efficient.
income tax
Credits and Deductions
Let’s talk a little bit about tax credits and tax deductions. Both can be used to help reduce or avoid taxation but behave differently when it comes to doing so. Tax deductions are beneficial because help lower the amount of your income subject to taxation. Deductions may be either “above the line” or for AGI, or “below the line” or from AGI. The line in the sand in this scenario is of course, AGI (adjusted gross income). Above the line deductions are beneficial because they reduce gross income to arrive at AGI. A lower AGI may result in being able to take advantages of other benefits in the Internal Revenue Code (IRC) such as being able to contribute to a Roth IRA and qualifying for additional tax credits (discussed below). Common above the line deductions include pre-tax 401(k) contributions, student loan interest, deductible contributions to a traditional IRA, HSA contributions, […]
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Missing a W2? Here’s What to Do…
So – you’re all set to do your taxes. And then… you realize you’re missing something. One of your W2’s hasn’t shown up in the mail. Maybe it was a short-term or a part-time gig, or maybe the business changed hands – or maybe it just got lost in the mail. Whatever the reason, you’re missing one of the documents that you need in order to prepare your tax return. So what do you do? What Do You Do? Your employer is required to send your W2 earnings statement to you by February 1 for the prior year’s earnings. But sometimes things go awry, and you don’t receive the form. There are four steps to follow to retrieve the required information… Contact your employer – inquire if and when the W2 forms were mailed out. It’s possible that the postal service returned it to your employer due to an incorrect […]
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Taxation of Income, Capital Gains, and Interest
When you receive income, it’s likely going to be subject to taxation. However, the type of income will determine the specific tax treatment, and ultimately determine how much you get to keep. We can break income down into three basic types: ordinary income, capital gains income, and interest income. Here’s a breakdown of each. Ordinary Income – Ordinary income (OI) is income received that is subject to ordinary income tax rates. These tax rates are the rates individuals pay on incremental amounts of income. Rates can be as low as 10% and as high as 37%. Income typically subject to OI rates is income from your wages (W2, self-employment), taxable bond interest, taxable retirement income, and annuity income. Capital Gains Income – Capital gains income occurs from the sale of assets such as stocks, bonds, mutual funds, ETFs, real estate*, and other assets. Depending on how long the assets were […]
Sterling Raskie, MSFS, CFP®, ChFC®
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