Personal Tax Planning is essential as we move through different phases of Life. Your income and tax profile change as milestones are reached; marriage, divorce, starting a family, kids going off to college, changes in income and so forth.
Many think these milestones are just check boxes on the tax forms that you fill in at the end of the year. That may be too late. Good personal tax planning can help you be prepared for how these changes will affect your income tax return.
If you get married or divorced on or before December 31st, it will change your income tax filing status.
If you are newly married, you will need to choose if you want to file married filing jointly or married filing separately. This decision can affect your personal tax return in several ways. The rules are set up to encourage people to file jointly, so there are several income tax benefits you cannot take if you elect married filing separately. You will lose any tax advantage you may receive for college expenses for you, your spouse, or your dependent. You will also be unable to receive Earned Income Credit or any federal health insurance assistance.
You are considered married, until you have a divorce, annulment or notarized separate maintenance agreement. The paperwork needs be finalized and/or notarized on or before December 31st, to affect your income tax return for the current year. If you make or receive payments under your divorce or separation instrument, it may also affect your return.
When you start a job, you need to fill out a W-4. This form tells your employer how much they should hold for federal income tax. How you fill this out will not only affect your income tax return, but how much you bring home every check. Also, this form cannot take into account if you have more than one income in your house, so that may change how you want to fill it out. If you have received any assistance in paying for your health insurance, you must report job changes to avoid any penalties.
If you lose your job, you may be able to deduct your job hunting expenses. If you receive unemployment benefits they will be taxable, you should consider having taxes withheld.
Are you thinking of taking money out of your IRA or retirement fund? If you are under 59 ½ , you will be taxed on this money. Not only will you have to pay Federal income tax but you will have to pay an additional 10% penalty. In Pennsylvania, you will have to pay state and local tax on your retirement withdrawal as well. While many companies withhold 20% in federal tax, this will not usually cover everything. Even if you are in the lowest tax bracket, and your local tax is only 1%, overall you will pay at least 25% in taxes. If the distribution puts you in a higher tax bracket you could easily end up paying 40% or more of what you take out to various government agencies.
If you are about to retire, it is possible that your social security could be taxable. This depends on your overall income and can change from year to year. IRA’s can be penalized if you leave them in too long. When you reach age 70, you should start talking with your financial advisor, to determine when you need to start withdrawing money to avoid penalties.
As you can see, something that sounds like a simple check box on the form can have varied and significate effects on your personal income tax return. That is why we are available year round for free personal tax planning. Contact us if you have any life changes, we can look at your individual situation and let you know how it will affect your taxes.Set up an appointment online. Set up an appointment by phone 814.941.1040
We'll prepare your federal and state tax return, identify all deductions and credits available, and get you the biggest refund possible.
We examine returns prepared by you or someone else, from as far back as three years. If you’re missing money owed to you, we’ll make sure you get it back.
Not ready to file? If you need more time, we can file an extension for you, to help you avoid penalties.
If you get an audit notice from the IRS about a tax return we prepared for you, we’ll appear with you at the audit to explain how your tax return was prepared.
When you come to us for tax preparation, you’ll receive our Accuracy Guarantee, which covers you in case a Tax Pro at Jackson Hewitt makes an error preparing your tax return.
To get started early, see if your employer offers secure W-2 downloads to Jackson Hewitt. There’s no need to wait for a hard copy of your W-2.
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