How Tax Rates are Determined

When filing your federal income tax, it’s important to understand which tax bracket you belong to. Both your filing status and your income are important factors in determining which bracket you fit into. In this article we will discuss how tax brackets are determined in detail.TaxRateDetermination

Understanding Tax Brackets

The marginal tax brackets are separated into six different sections which represent the highest rate payable on your income. This system is a progressive (or graduated) tax schedule meaning that the more money you earn on your yearly income the more taxes you have to pay. The six sections are represented by 10, 15, 25, 28, 33, and 35 percent.

Moving Between Brackets

If you move from one bracket to the other during the same year, you may think that all of your income is taxed at the higher rate. This is not necessarily the case, however; only the money that you earn within your current rate is taxed at the higher percentage.

Filing Status

A filing status describes how you are currently living and regulates your requirements and standard deduction amount. Eligibility for tax credits, deductions, and even your income tax are all affected by your determined filing status. The five federal filing statuses based on marital status and other living conditions are: single, head of the household, married filing separately or jointly, and qualifying widow or widower with a dependent child.

Conclusion

Your filing status and what income tax you are responsible for are all dependent on your tax bracket. Moving between brackets can greatly affect what percentage of taxes that you pay at the end of the year.

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Ways to Waste Your Tax Refund

Smart taxpayers know that they should use their tax refund to pay off their pre-existing debt before creating more. If they don’t have any debt they use it to put into a savings account to avoid bad situations. However, if you feel that you just received some “free money” and can do what you like with it, consider doing some of the things mentioned below.
Splurge on Designer Items
Many Americans know all too well when one of their relatives or friends has received their tax refund. They go out and splurge on designer items at the beginning of each year.
Make a Down Payment on a Luxurious Car
Another sign that tax refunds have been received is all of the shiny luxury cars that appear on the roads with 30-day tags. Since the taxpayers did not pay off their pre-existing debts before creating a new one, they usually end up with their new prize car reposed before the middle of the year arrives.
Going to the Casino
What could possibly be better than a $3,000 tax refund – a $6,000 or higher wad of cash? If you want to see if luck is on your side, head over to the closet casino and see if you can turn yourself into a millionaire and take a year off.
Join Your Friend’s Business
Your friend has been begging you to pay for a get rich quick seminar so you can join their company that will allow you to live out your dream of quitting your nine to five. This only costs $500 in multiple payments, so why not if you could become rich and quit your day job?
Seattle CPA firm Huddleston Tax CPAs can help you. Overall, the average tax refund is only about $3,000, which means you have $3,000 that you can waste if you do not take the time to use it wisely. Give us a call at (425) 483-6600.

Costly Mistakes to Avoid on Your Tax Return

Many taxpayers do not return to their calm states after their tax returns have been sent off to Uncle Sam. This is because you then have to worry about whether you are going to be hit with a penalty, audited, or have to make amendments to it. Today, we are sharing with you some costly mistakes to avoid on your tax return so you can be confident knowing that you have nothing to worry about once the IRS reviews it.
Pay on Time
If you are expected to pay estimated taxes throughout the year, do it on time. Not paying estimated taxes will result in a penalty, even if you decide to pay the entire amount of taxes due before the April deadline. In some cases, you may be able to get a reprieve when contacting the IRS and telling them a reasonable cause for being late.
Omitting Finances
Sure, if you barely freelanced during the year or received a small amount of interest on your bank account, you may think that it is not important. However, the IRS thinks everything is important when it comes to your income and if you omit it and they have proof that you received it, things could turn into a real mess for you. Therefore, double-check your tax return to be confident that you have reported all of the income that you were supposed to report.
Huddleston Tax CPAs, a Shoreline CPA firm, can help you avoid these two mistakes, and save you some money during tax season. These are not all of the mistakes that could cost you money yet they are the most common made by taxpayers. To be 100% sure that you will not get any problems from the IRS, it is always recommended that you triple check your return before sending it off to them. We can be reached at (425) 483-6600.

How the IRS Catches Cheaters

Have you ever wondered how the IRS catches cheaters? We all know about the civil and criminal penalties that are in place to help prevent cheaters; however, today we are discussing just how cheaters are caught.

Computer Data Analysis

The IRS matches the information that taxpayers file to the records that the employer and other parties have sent over. While it is possible that an individual makes honest mistakes, just be aware that if you are intentionally trying to cheat, you will be caught.

Social Media

The IRS knows that social media is big in this day in age. Therefore, they do watch your social media accounts so they can see if your lifestyle is matching what your “income claims” reveal. Additionally, they look at vacations to see if you are filing them as business expenses when you were actually spending that time with your family. Social media will not trigger an audit yet it can help them build a case against you if your account brings up red flags.

Whistle-Blowers

Other taxpayers can inform the IRS of those cheating on taxes in exchange for a reward. Some individuals do this because of revenge while others do it for the money. Then, of course, there are those who do it because they feel that they are doing the right thing.

Bottom Line

It is important to make sure that you do not fool around when it comes to the IRS. They have multiple ways to catch cheaters, and just because they do not catch you immediately it does not mean that they will not catch you over time. Call Seattle CPA Huddleston Tax CPAs for help understanding tax law.

Tax Pitfalls to Avoid

Tax laws are always changing and usually they do not benefit the taxpayers. Therefore, today we are discussing some of the tax pitfalls to avoid during the 2015 tax year.

Net Investment Tax

If your AGI is more than $200,000, you will have to pay an extra 3.8% on all of your taxable investment income. The government is using this money to fund programs such as Obamacare and Medicaid.

Health Insurance

You still have to watch out for the 1% penalty for not being insured but in 2015 you can expect to have to report whether you had insurance throughout the entire year and if tax credits helped you obtain it. If you used tax credits, you may have to pay back some of the credits if your income turned out to be higher than estimated.

Same-Sex Marriage

The Supreme Court may be on board with same sex marriages but not all states are. You have to make sure that you are aware of your individual state laws.

Digital Currency

Everyone is not using digital currency yet but there are enough individuals using it that the IRS feels it is time to set some regulations. Digital currency owners now have to report their expenses and losses as they would with any other form of payment.

Closing Thoughts

The 2015 tax year is bringing in some new laws. Therefore, it is important that you are aware of them so you can avoid pitfalls when tax season rolls in. Huddleston Tax CPAs is a Seattle CPA and Bellevue CPA firm that can help you avoid pitfalls and advise you during difficult decision making times. Get in touch with us at (425) 483-6600!

Tax Saving Tips for the Rich

Tax Saving Tips for the Rich

When it comes to being rich, it can be a good thing when tax time comes around. Today, we are discussing some of the tax saving tips for the rich.

Mortgage Interest

The rich are able to take advantage of the mortgage interest deduction. While it is, true that middle class homeowners are also able to take advantage of this deduction it does not mean that it is in everyone’s best interest to own a home rather than rent one. Additionally, a study has shown that those who earn more than $250,000 are able to write off more than $5,000. Therefore, imagine how much those in higher income brackets can write off.

Capital Gains

Long-term capital gains are taxed at 15%. When you look at the numbers, you will see this is less than the 35% that ordinary wages are taxed at. It also shows that the rich are able to derive some of their income from capital gains allowing them to pay less than half of the tax rate on their income when compared to middle class income owners. Overall, capital gains are the way that the rich is able to stay rich.

Retirement Savings

Tax deferred retirement plans are for all Americans to save money for their retirement years. However, since the rich have to save more money they are able to benefit more by saving for their retirement years.

Bottom Line

If the rich want to stay rich, they have to make sure that they do something to save on their taxes. The three methods mentioned above will keep them from having to pay so much to Uncle Sam.

Tax season is in full swing! Give us a call at (425) 483-6600! We are a Seattle CPA firm!

 

Tax Breaks Overlooked by Those Who Are Newly Divorced

Every time something major happens in your life, you can expect some changes to happen on the tax front too. Many of those who are newly divorced miss valuable tax breaks because they are used to filing jointly. Today, we are discussing the tax breaks that are overlooked by those who are newly divorced.

Exemptions for the Kids

The custodial parent is able to claim all qualifying children as dependents on the tax return. However, the noncustodial parent can claim their child if the custodial parents signs the waiver stating that they will not claim the child. This could be ideal to do if the noncustodial parent is in a higher tax bracket.

Filing Status

If your divorce is final by the end of the year, you can claim Head of Household. This will allow you to receive a larger standard deduction. However, if you are still married at the end of the year you can always file married filing separately. It is recommend that you still file married filing jointly though since filing separately does not provide you with any tax benefits.

IRA Contribution

Usually, taxpayers have to have earned income to qualify to contribute to an IRA. However, some divorced people are an exception. The taxable alimony you receive can count as compensation when contribution to an IRA. Therefore, if you are at least 50 years of age, you can contribute up to $6,500.

Closing Thoughts

When you get a divorce make, sure you do some research to see what tax breaks you might be overlooking.

Call us at (425) 483-6600! We are a greater Seattle CPA firm!

Top Tax Preparation Tactics for Small Businesses

If you are a small business owner you have to make sure that, you stay on top of your finances. We understand that you have to play many roles within your business, which is why we are sharing the top tax planning strategies for small businesses today.

Know How to Balance Profits and Deductible Expenses throughout the Year

If you are a small business you will find that your net income from your business goes on a 1040 and is taxed at your individual tax rates. The 2015 brackets are similar to 2014, which helps to guide you on how you should be deferring profits into the upcoming tax year while simultaneously accelerating deductible expenses for the current year. However, keep in mind this is for businesses who expect to remain in the same bracket or a lower one. By utilizing this strategy, you will be able to defer a portion of your tax bill to the next tax year.

Invest in a Heavy Vehicle for Your Business

Since heavy SUVs, pickups and vans are used to get stuff around for your trade, you are rewarded with federal income tax benefits. By making an investment in one of these vehicles for your business, you are able to instantly deduct up to $25,000 of the price that you paid for the vehicle as long as you utilize it for business purposes before the end of the tax year.

Bottom Line

If you were a small business owner, it would be a good idea for you to consider utilizing one of these strategies before the end of the tax year.

Thank you for reading our Redmond CPA blog post! If you are a small business owner, interested in hiring a business coach in the upcoming year, read our Seattle CPA Small Business Coaching page and call us at (425) 483-6600! Happy New Year!

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Tax Breaks for Dependent Care Expenses

If you have dependents that you care for you are in luck when tax season rolls around. The IRS has tax breaks for dependent care expenses and that is what this article today is going to discuss.

The Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit, also known as CDCTC, is a credit that is available for working taxpayers who spend money caring for children, incapacitated spouses, or adult dependents. It allows up to $3,000 in dependent care expenses to be claimed for one dependent and up to $6,000 for two dependents. If eligible, one should definitely take advantage of this credit. However, since the Child and Dependent Care Tax Credit is nonrefundable if you do not owe any federal income taxes you will not benefit from claiming the credit.

Things to Keep in Mind about the CDCTC

  • The reason that the care was provided was so you or your spouse could work or look for work.
  • You cannot file married filing separately and be eligible for the credit.
  • The person who you are claiming must have had their support provided by you for more than six months out of the year.
  • The credit covers up to 35% of your expenses. However, the exact amount is determined by your adjusted gross income.

Closing Thoughts

If you qualify, you should take advantage of the Child and Dependent Care Tax Credit. It may not come to you in the form of a refund yet lowering the amount of federal taxes that you owe is even better than receiving a tax refund.

We are a CPA firm in Redmond! We are also a Seattle CPA firm! Get in touch with us at (425) 483-6600!

Essential Financial Moves for Same Sex Marriages

Same sex partners do joint financial plans just like those who are of different sexes. Therefore, like traditional couples, there are some essential financial moves for same sex marriages and today this article is going to cover what they are.

Taxes

The IRS does offer benefits for those in same sex marriages, including benefits that were not available to them previously. Some of these include employee benefits are not considered taxable compensation, one spouses loss can be used to offset the other spouses gains, they can take advantage of the “marriage benefit”, and federal estates are not applicable to assets that pass to the surviving spouse. The best part is returns for the past three years can be amended so couples can take advantage of these benefits.

The Bad

That was the good news about taxes. However, if the couple resides in a state that does not recognize their marriage the couples will have to file their state returns under a different status. In addition, marrying could cause them to experience the “marriage penalty” instead of the “marriage benefit”.

Conclusion

When you tie the knot with your love, the first thing that has to be on your mind is your finances so you are aware of how tax time is going to go for you. It may not be something you want to think about early own yet it is something that has to be done to insure that tax season is not a headache for you.

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  • Huddleston Tax Accountants / Huddleston Tax CPAs – Redmond, WA
    Certified Public Accountants Focused on Small Business
    8201 164th Ave NE Suite 200 / Redmond WA 98052
    425-483-6600

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, offer in compromise debt relief, and business valuation services for small business.

    We serve Tukwila, Auburn, Federal Way. We have a few meeting locations. If you are looking for a Redmond CPA firm, get in touch with us! Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.