Paying Back Student Loans and Tax Returns

 A favorite topic of  mine is financial aid, specifically student loans.  Recently, I consolidated my student loans and applied for the income based repayment plan.

 If you owe student loans , and need advice on consolidating and different repayment plans, feel free to send me a message. I worked in financial aid and I am successful in managing my student loans .

Recently, I talked about Married Filing Jointly vs. Married Filing Separately. I will like to add a benefit of filing Married Filing Separately. If you owe student loans and are in repayment , it may be advantageous for you to file Married Filing Separately. This may save you thousands and thousands of dollars over your lifetime.

 If you file Married Jointly, your student loan repayment plan is based on  your income and your spouse's income.  The  combined incomes may  disqualify you for the income based repayment plan and your student loan payments could be significantly higher than if you have not married.

Filing Married Filing Separately may decrease your student loan  payments by  thousands of dollars each year. You may potentially qualify for the income based repayment plan.
 an example of how filing status may affect your student loan payments:

You owe $60,000 in student loans. You make $39,000/year and your spouse makes $63,000/yr.

If you file married filing jointly with your spouse, your student loan payment will be based on $102,000 of yearly income. You will disqualify from the income based repayment plan , you will instead qualify for the standard based repayment plan and will pay $690 a month.

If you file married filing separately, your student loan payment will be based only on your income of $39,000. You will qualify for the income based repayment plan and will pay $130 a month.

 Filing married filing separately will save you $560 a month, that's $6720 a year!

If you want more information, please feel free to comment on  TaxCharm.
Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.

Married Filing Jointly vs. Married Filing Separately

Welcome back to Tax Charm, I hope everyone had a beautiful Christmas!

 Married Filing Jointly (MFJ) vs. Married Filing Separately (MFS) is the topic I will discuss in today's post.  This is a very popular question . My married girlfriends call me up and  tell me they want to file Married Filing Separately because their husband makes too much money. I usually advise them against filing separately.  The Married Filing Separately status robs people of a vast amount of tax benefits, the IRS wants all married couples to file their taxes together. There are only a few amount of circumstances in which I would advise a person to file MFS. I will discuss these at the end of my post.The number one circumstance I will advise someone to file MFS  if he/she owe  federal student loans and are in repayment( discussed in next post).

The following  tax benefits are  disallowed by the IRS if one files Married Filing Separately:

•  Earned Income Credit
• Child Tax Credit
• American Opportunity Credit or Lifetime Learning Credit
• Child and Dependent Care Credit
• Tuition and fees deduction
• Student loan interest deduction
• Tax-free exclusion of US bond interest
• Student loan interest deduction
• Tax-free exclusion of US bond interest
• Tax-free exclusion of Social Security benefits
• Credit for Elderly and Disabled

 
Also, if one spouse itemizes deductions, the other spouse would also have to itemize. This tax rule holds true even if the other spouse has limited expenses to itemize. The spouse would be forced to itemize although it would be more beneficial to take the standard deduction.

So ,if you qualify for any of the above tax credits , File Jointly with your Spouse.


There are only a few instances when it makes since to file Married Filing Separately.

•   You suspect your spouse is evading taxes and you don't want to be held responsible
•  One spouse has a significant amount of medical expenses
•  Great amount of personal casualty losses incurred by one spouse (deductible only to the extent they exceed 10% of AGI).
•  A vast amount of un-reimbursed employee business expenses,  tax advice fees and preparation, and investment expenses that are incurred by one spouse (deductible only to the extent they exceed 2% of AGI).
• You are repaying federal student loans

When in doubt, work the numbers both ways, Married Filing Separately and Married Filing Jointly. Do this to find the tax situation in which the couple owes the less money or gets the most money back.

That's all folks!

Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.
 

“Tax Us, We Don’t Mind.” Celebrities and a CEO who want to pay Higher Income Taxes

Warren Buffet says he wants to pay higher taxes. While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks," Warren Buffet writes.

What’s a few billion to 46 billion? Warren Buffet pays an effective rate of 27.9% tax rate, while he says his secretary makes $60, 000 and pays a tax rate of 30%. Although If I was Billionaire Warren Buffet’s secretary, I would be asking for a raise…..

Jay-Z He says “Obama Can Tax Me.”  Jay-Z does not mind paying higher income taxes if it goes to education and poverty.
 
Jay, we got 99 Problems and Mitt Romney ain't one! I can say that with my chest now.

Eva Longoria "The Eva Longoria who worked at Wendy's flipping burgers -- she needed a tax break,” Longoria told the crowd at the Democratic National Convention. "But the Eva Longoria who works on movie sets does not."

 Right on Eva! Eva has a net worth of 35 million. While the average 2012 Wendy’s worker makes $7.25 an hour and has a net worth in the negative.

JP Morgan Chase’s CEO Jamie Dimon CEO Dimon supports paying 39.6 percent in taxes, up from what Dimon paid last tax year. Dimon also said he might back an increase in the capital gains tax rate to around 24 percent from 15 percent, a proposal by President Barack Obama, for people making above $250,000.

Ben Affleck "I don't know, you know, what your nut looks like," Ben Affleck said to O'Reilly, "but I don't spend so much that I can't afford to pay a little bit more in taxes."

Will Smith says he is very supportive of President Obama's proposal of increasing taxes on the wealthy?"America has been fantastic to me. I have no problem paying whatever I need to pay to keep my country going."

Chris Rock  " I’ll pay higher taxes," Chris Rock told the Associated Press. "I look at it this way: I can pay higher taxes and people can have jobs, or I can pay lower taxes and I have my kid’s teacher asking me for a loan because she’s going to lose her house, which is true,” “So I’m going to lose the money no matter what."

Mind you, this conflicts with what Chris Rock said on the YouTube videos. However, that was the Comedian Chris Rock relating his comedy to us not so rich folks.

  So readers,  there you all go, there are rich Americans who don’t mind higher taxes. Some of the wealthy and more fortunate American citizens consider paying higher taxes as giving back and making the United States go round!!


  “I’m thankful for the taxes I paid because that means I’m employed” Nancie J. Connelly

Who has the the right to claim a child on on tax return if the child is taken care of by more than one person?

  I ran across this tax issue quite frequently last tax year.  I had a tax client say he took care of his son all tax year and the son lived with him most of the tax year. He says  his ex -wife does not even work but somehow she managed to file taxes and claim the child despite their agreement.
 A college friend of mine called me , the mother of his children claimed both the children. He and the mother of their children have a court-ordered split custody arrangement, the children live with her six months and live with him the the other six months of the year. He pays majority of the children expenses.

 I asked him who makes the money , he said he does.  If the children live with both parents an equal amount of time, the person with the highest AGI (Adjusted Gross Income) has the right to claim the children as qualifying dependents. Therefore, he has the right to claim the children. Unfortunately, the children's mother already filed a tax return, he cannot e-file.  He will  have to mail a paper tax return to the IRS.

The  IRS applies the tax-breaker rule when more than one person claims the same individual. My college friend would receive for the tax benefits of claiming the qualifying dependent  since he is the children's parent, the children lived with him six months out the year, and he has the higher AGI. If the mother already received the money, she will get audited and will owe the IRS the tax money back.

Refer to Tie-Breaker Rules below.

Only one person can use the same qualifying child.
Under the Tiebreaker Rule, the Child is Treated as a Qualifying Child Only By:
• The parents, if they file a joint return;
•The parent, if only one of the persons is the child's parent;
•The parent with whom the child lived the longest during the tax year, if two of the persons are the child's parent and they do not file a joint return together;
•The parent with the highest adjusted gross income (AGI) if the child lived with each parent for the same amount of time during the tax years, and they do not file a joint return together;
•The person with the highest AGI, if no parent can claim the child as a qualifying child; or
•A person with the higher AGI than any parent who can claim the child as a qualifying child but does not. ( www.irs.gov)


Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.

Celebrities are not above the IRS.

 Lil Wayne thought the IRS was playing until the IRS threaten to seized his$ 11 million mansion for his tax debt of roughly $7 million.

 Other Celebrities who owe back taxes in 2012 include:

Lauryn Hill evaded taxes on a 1.8 million income. Maybe,she thought having six kids might get her a tax refund. Not!!

Pamela Anderson  owes $350 million in back taxes to the IRS and State of California. She has two tax liens on her assets.

Robin Thicke and his wife Paula Patton had a $492,583 tax lien against their Los Angeles Mansion.

Lindsey Lohan is walking around with rubber bands of money after her bank accounts were seized after failing to pay $233,904 in taxes.



 Smh, these celebs didn't learn anything from Wesley Snipes! Wesley Snipes is serving three years in prison for evading taxes on $40 million.


Locked Up!

Last minute Tax Charm planning tips

The New Year is just around the corner.  I hope everyone is enjoying all the holiday festivities. Now, let's get to business, tax business! There is still time for tax planning for the 2012 year. In this post, I will talk about some final tips on cutting your tax bill or getting a bigger tax refund.

Tax planning this year is more difficult due to the indecision about which tax cuts will expire and which tax cuts will be extended. All the same, there are still actions we can take to trim down our tax burdens.

-Get organized. Gather all cash receipts, contributable donations receipts, paid tuition receipts, IRA earnings statements, student loan interest payment receipts, and all other tax related documentation together.

-Gather up old clothing, toys, furniture, books, and anything else you don’t need to donate to a charity. This also helps with getting the house clutter-free for the New Year. Make sure you get an itemized receipt of everything you donate to claim on your taxes if you itemize deductions.

- Maximize your contributions to IRAs and 401Ks.  The benefit is it defers your taxable income and your money grows tax free.  Also, depending on your income, you may be eligible for a tax credit for contributing to 401K or a qualified retirement plan.

- Pay college tuition and/or continuing education expenses early before January 1st.  The Lifetime Learning Credit is still around for 2012 and I just read the American Opportunity Learning credit will be extended.

- If you own your home, pay January mortgage in December. December interest is billed on January’s mortgage bill, and you can deduct 2012 mortgage interest  expenses on your 2012 tax return.

See you taxpayers next time at Tax Charm!

 

Disclaimers:

Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.

The Fiscal Cliff and Tax Returns

 Thanks for visiting my blog, Tax Charm.   I will blog  about the latest tax issues for the 2012 tax year, tax recommendations and I will  personally answer your tax questions.

Today, I will discuss the effects of "The Fiscal Cliff" on the average American 2012 taxpayer, or at least what I consider to be  average.  Many of you have at least heard of the "The Fiscal Cliff."  You may heard about it on CNN, on MSN.com , or simply  read one of your Facebook or twitter friends statuses.
 
If you do not know what "The Fiscal Cliff" is or the possible effect of it on our country , I advise you to do your research!  Political debates and issues affect every single one of us.  I will go over what is meant by the fiscal cliff and its implications on tax returns. However, the fiscal cliff affects a lot more than tax returns.  Since I am not an economist or  an expert on the fiscal cliff, I'll just stick with what I do know and that is income taxes.

For starters, "The Fiscal Cliff" ( a term coined by Bernanke)  refers to the economic effects that could result from tax increases, spending cuts, and a reduction in the U.S. budget deficit.

Next, I  go over what it could mean for our tax returns if the President, Congress and policy makers do not come to an agreement .

Some  tax cuts are scheduled to expire  at the end of 2012 and will expire if the Congress does not extend them.

Payroll tax cut expires (payroll taxes go from 4.2% to 6.2%; your taxes go up 2%). Smaller payroll checks for all.

Income tax brackets all increase (10% to 15%, 25% to 28%, 28% to 31%, 33% to 36%, 35% to 39.6%)

American Opportunity Credit of $2500 for college tuition costs set to expire

Child tax credit reduced to $500 (from $1000)

Capital gains tax increases from 15% to 20%

Dividend tax rate will greatly increase from 15% to 39.6%!

Tax refunds will be delayed

Above is not an all inclusive list of possible tax return effects, there are other tax increases and credits that may expire or be changed that are not in my list. Please continue to do your own research.

No one knows for sure what will actually happen. Everything is up in the air as our policy makers make last minute decisions after procrastination. They seem to wait until the absolute end of the year every tax year.

I like to keep people informed. On a more positive note, I will like to wish you all a

Merry Christmas and a Happy New Year!

  Check out the following articles for more information on the "The Fiscal Cliff"

What is the Fiscal Cliff
Fiscal Cliff Impasse "Can a Deal still get done?" cnbc
www.cnn.com/2012/12/19/politics/fiscal-cliff/index.html



Disclaimers: 

Tax Charm blog is not legal or professional advice.

You are reading Tax Charm blog at your own free will and you are taking the information provided at your own risk.

I am the legal copy righter of this blog, you may not use, reprint or publish information from this blog without my permission.