"Ambition is the path to success. Persistence is the vehicle you arrive in." — Retired NBA star and former Sen. Bill Bradley
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The Internal Revenue Service (IRS) headquarters in Washington, D.C.
Don’t miss this tax season savings opp. I’m going to let you in on one of the best money-saving tips for doing your taxes—one that literally millions of people miss out on.
Free tax prep.
There are a handful of no-cost programs you might qualify for. The big one is called Free File. It’s a partnership between the IRS and the Free File Alliance, a nonprofit group of tax prep software providers including H&R Block, Jackson Hewitt and TurboTax.
If you’re eligible, you get free access to the partners’ tax software to prepare your federal return, and then file it for free. (You may also be able to prepare and file your state return for free.)
About 7 in 10 taxpayers—100 million people—qualify for Free File. But the IRS has no advertising budget, so only about 3 million people use the program in a given year, says Tim Hugo, executive director of the Free File Alliance.
“I just wish more people knew about it,” he says.
Here’s how to take advantage:
Who is eligible: Taxpayers who earn about $66,000 or less. If you’re just over that threshold, grab last year’s tax return and use the program tool to check your eligibility.
How it works: Go to the IRS Free File site and choose from the options available to you based on where you live and other factors like your age and military status. You’ll be redirected to that software provider’s site to complete your return. (Don’t skip the Free File site and go directly to the preparer’s site, Hugo says. You won’t get the same deal.)
If you want free in-person help, there are also a handful of programs from the IRS and AARP that operate out of community centers, libraries and schools.
The IRS Volunteer Income Tax Assistance (VITA) program works with people with disabilities, who speak limited English or who make $55,000 or less; its Tax Counseling for the Elderly (TCE) program focuses on people age 60 and older. AARP says its Tax-Aide program offers free help to anyone but is particularly geared toward people age 50 and older.
You know those baby onesies that say “cutest tax deduction”? Not true. I always joke that my kids are much more valuable. They’re a tax credit. (Certified financial planner humor! We’re great at parties.)
So, what’s the difference between a credit and a deduction? Both breaks reduce your taxes, but in different ways, according to April Walker of the American Institute of Certified Public Accountants.
A credit directly reduces your taxes owed, and it’s equally valuable for everyone who can claim it, she says. A $1,000 credit saves you $1,000. Some credits are even “refundable,” meaning they can reduce your tax liability below $0.
A deduction reduces how much of your income gets taxed, Walker says, so its value depends on your tax rate.
Let’s say you earned $35,000 last year, which puts you in the 12 percent tax bracket. A $1,000 deduction would save you just $120. That same $1,000 deduction would be worth $220 for a neighbor whose income puts him in the 22 percent bracket.
Credit: Pgiam | Getty Images
Tax season just opened, but the IRS is planning to send out the first wave of refunds to early filers this week. If you’re expecting a refund, it’s smart to plan out how you’ll use that money—and we’ll talk about those strategies soon.
But try not to get your expectations up this year, or pull the trigger on any related money moves, until you file. Your refund could be smaller than what you got back last year — and a few of you might even owe money instead.
Why has a lot to do with your paycheck.
Yes, tax rates are lower now, and changes to other breaks could further reduce your bill. “Most people are going to pay less tax in 2018 than they did in 2017,” says Tim Steffen, a CPA and the director of advanced planning at Robert W. Baird & Co. in Milwaukee.
But to reflect those new rates and rules, the IRS also changed the guidelines that help your employer determine how much tax to withhold from each of your paychecks, he says. You might not have paid in as much over the year, compared with previous years.
A report last year from the Government Accountability Office estimated that three in four taxpayers are still in line to get a refund, but one in five haven’t paid in enough—and so will have a bill at tax time. Even if you get a refund, it could be smaller because there’s less of a gap between what you owe and what you withheld, Steffen says.
You won’t know for sure until you file your return.
“Be prepared for that [refund] number to maybe be a little lower than it was in the past,” he says.
One side effect of having good savings and investing habits: You’ll see a few extra tax documents from the banks you do business with. Most are versions of a broad form called a 1099, which reports income you receive—everything from freelance earnings to state tax refunds.
Among the investment-related 1099s, here are four you might receive, according to CPA Jeffrey Levine:
Watch your email as well as your mail, says Levine. Often, banks make your 1099s available online before they mail them, letting you get ready to file faster. Sometimes, you won’t get a paper form at all.
Source: North Carolina Education Lottery
Lottery winner Roberto Mendoza plans to spend his newfound wealth on one goal: feeding the homeless.
A professional chef, Mendoza—who has cooked for President Donald Trump as well as former presidents Barack Obama, George Bush and Bill Clinton—prepares food for the homeless every weekend in Charlotte, North Carolina. Three years ago, he bought property in the Dominican Republic with an aim of building a cafeteria there to serve homeless and needy villagers. He plans to use his post-tax winnings of nearly $177,000 to fulfill that dream.
"I know what it's like to be hungry.…I went to bed crying and said when I grow up I'd do everything I can to make sure no one else has to go hungry,” Mendoza tells NBC’s TODAY.
A moment of mindfulness.
“We must never stop dreaming. Dreams provide nourishment for the soul, just as a meal does for the body.” ― novelist Paulo Coelho, “The Pilgrimage”
We’d like to hear the financial goals you’re fired up about and the milestones you’re hoping to achieve. Let us know your best strategies and successes. If you need us to tackle a specific topic, just ask! We’re in this together, so let’s get this conversation started. Send an email to firstname.lastname@example.org.