What's the difference between an exemption, credit and deduction?
Exemptions and deductions work the same way. They reduce your taxable income, which lowers your tax bill. For (a grossly simplified) example, if you take a $1,000 deduction, and you’re in the 20% tax bracket, you could save $200 on your taxes. Or if you get a $3,800 exemption, that’s about $760 less in taxes.
I'm married but I want to file my taxes as married filing separately, because my spouse and I like to keep our finances separate. Is that OK?
It actually doesn’t matter if you and your spouse have completely separate bank accounts, as long as you are married. If you want to file separately, you can, but you might miss out on some advantages that couples who file jointly get. Jointly filing couples get a bigger standard deduction, can take two exemptions, and can take multiple credits like the Earned Income Tax Credit, the American opportunity and lifetime learning credit, the exclusion or credit for adoption expenses, and the Child and dependent care credit. And filing separately could even lower how much you’re allowed save tax-free for retirement.
How do I know if I need an accountant? What should I look for?
Whether you need an accountant depends on how complicated your finances are. Going through a big life change, itemizing your deductions, owning your own business, being a freelancer, having complex investments or stock options are all situations in which an accountant would be a good investment.
I don't have kids or a mortgage. Are there any other big tax breaks I can take advantage of?
You’re right, you’re missing out on two of the biggest tax breaks. But you might have others. Everyone really, everyone should take advantage of the big tax break for retirement contributions. The more you contribute, the less you pay in taxes. If you’re paying interest on student loans or are paying tuition currently, those are two other big deductions you shouldn’t miss.
I can't afford to pay my taxes this year. What do I do?
First stop worrying you’re not going to jail. You have several options:
- Seek relief from the I.R.S. for the bill
- Take out a personal loan from a bank or credit union
- Set up an installment plan with the I.R.S.
- Put it on a credit card,for smaller amounts.
I realized after I filed that I made a mistake. What do I do?
Cop to it. The longer you wait, the more you’ll owe in interest and penalties if the I.R.S. finds out. You’ll need to fill out a new 1040 with the corrected information, and a 1040 form. We explain how to do all that, plus when and how you should file an amended return in our post on fixing a tax mistake.
What information do I need to provide to the credit repair company?
Access to their credit reports from all three credit agencies (TransUnion, Equifax, Experian) as these will reveal:
*List of all current debts
*Credit utilization rate
*Current and future credit plans
*Buying a car
*Applying for a mortgage
*Co-signing student loans
*Opening a new credit card
*Access to a credit monitoring software login so the credit repair company can continuously keep track of any key changes in the credit score
Why am I taking this medical exam?
Because your prospective insurance company wants to get an idea of how risky you are to insure or, to put it bluntly, how likely you are to die during your policy’s term. They do this whole «classification» thing that ultimately determines your premiums.
Is that what term life insurance is?
Term life insurance is a policy that covers you for a fixed period of time. So, if you die during the term, your beneficiary gets the death benefit. Permanent life insurance, on the hand, covers you permanently. Your beneficiary is still entitled to the death benefit when you die, but there’s also a cash value component you can borrow against or partially cash out after a period of time.