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Smart Ways To Use Your Tax Return This Year

Getting a tax refund is a great time to start planning for the year, but you may also feel the drive to use your refund as a way of treating yourself.

While it’s understandable that you’ll want to buy yourself something nice with all of this extra money, it’s also important to remember that a tax refund is a long-term investment. Over the years, the average taxpayer has received a refund of around $3,000. To help you plan for the future, here are some simple tips on how to spend your tax refund.

Start Investing

One of the most important steps in building wealth is to invest your tax refund. Doing so will allow you to grow and put money into a variety of different financial instruments. For instance, if you receive a tax refund of around $3,000, investing it will allow you to earn an average annual return of 6%.

It’s also important to note that investing your tax refund in each of the next 10 years will allow you to build up a substantial amount of wealth. After 20 years, you’ll have more than $60,000 invested.

Wipe Out Some Debt

Getting carried away by high-interest debt can negatively affect your bottom line. It can also increase your monthly expenses and put a strain on your credit.

One of the best ways to get rid of high-interest debt is to pay off your credit card bill. Doing so can save you thousands of dollars a year in interest.

If the refund doesn’t cover all of your credit card debt, consider using a balance transfer credit card to pay off the remaining balance. If your credit is not good enough, consider a debt consolidation loan.

If you have high-interest debt, start planning on how to pay it off. If your tax situation is the same next year, adjust your current withholding to allow you to use the money to pay down debt.

Build An Emergency Fund

An emergency fund is a type of savings that can be used in the event of a job loss, medical emergency, or sudden financial setback. It should have a minimum of three to six months worth of expenses.

Getting a tax refund can also help you build an emergency fund. One of the best ways to use this money is by opening a high-yield savings account. Some of the online banks that offer this type of account include Capital One, Marcus, and Ally.

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IRS Sees Billions in Crypto Seizures

One of the major issues that have been plaguing cryptocurrency traders and holders is the ever-growing number of government seizures. From Japan to the United States, there have been many instances where law enforcement agencies have seized cryptocurrency holdings – whether it be from individuals or businesses. One agency in particular that has seen a significant amount of success in these endeavors is IRS agents who have made billions by seizing crypto assets. In this post, we will outline 5 potential reasons why IRS sees billions in crypto seizures.

Cracking Down on Illegal Transactions and Money Laundering

One of the main reasons why the IRS is cracking down on what it sees as illegal transactions and money laundering is because most cryptocurrencies were designed to bypass third-party influence, thus making them ideal for criminal activities such as tax evasion and money laundering. When we look at Bitcoin in particular – the most popular cryptocurrency today – it was created in 2008 in order to eliminate the need for any bank or government involvement during transactions.

Lack of Paper Trails

Another motivator behind IRS seizing cryptocurrencies is the absence of a paper trail. Unlike when dealing with fiat currencies (dollars, euros, pounds, etc.), there is no physical proof of your ownership of the cryptocurrency. This means that when you sell or trade your digital currency, there is no seller or buyer information to prove that the transaction actually happened. Essentially, this provides an opportunity for anyone to sell their coins without it being associated with them.

Lack of Transparency

There’s also a lack of transparency involved in Bitcoin transactions. Since Bitcoin was designed for anonymity, it’s virtually impossible to determine the identity of the sender and receiver just by looking at wallets. This makes it extremely tough to prove that cryptocurrency was received illegally or involved in criminal activity.

Fear of Losing Out

Another important aspect is that Bitcoin has become incredibly popular recently, which means there is more and more competition among traders and investors to sell their Bitcoins. This has led some people to avoid reporting their cryptocurrency activity, while others have even resorted to illegal measures in order to avoid losing out on huge profits.

Fear of Doing the Wrong Thing

Finally, another reason why IRS is seeing so much success with seizing cryptocurrencies is that most people don’t know whether they should report their cryptocurrency transactions to the IRS or not. This is one of the main reasons why we’ve seen a significant increase in tax evasion and money laundering recently.

The Future of Cryptocurrency

Even with all these obstacles, there’s no doubt that cryptocurrencies like Bitcoin and Ripple will continue to grow and even replace fiat currencies in the near future. Many European countries such as Sweden and Russia have started embracing digital currency payments, which shows that many governments are willing to explore new technologies like cryptocurrency.

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blog, John J. Bowman Jr Accountant, John J. Bowman Jr. Accountant, personal finance, tax

Improve Your Results with These Investment Tips

Investing money is something that you need to focus on if you want to get good results. You can’t expect to turn a profit if you just make moves without thinking them through. Look at these investment tips that can help you to improve your results over time. You should be able to put yourself in a much better financial position if you follow the advice well. 

Invest in Stocks That You Know

Investing in stocks that you know is generally going to be better than taking a gamble on an unknown entity. If you invest in companies that you know nothing about, then you’ll have no way of knowing whether you’re making a good move. Also, it’s important to know about the types of stocks that you’re investing in. If you have no knowledge of a specific industry, then you might want to learn about it before you start investing money. 

Try to Diversify

Diversifying isn’t just some fancy term that people throw around in the investment world. You should try to diversify your investments so that you can lower the risk of having your investments wiped out. If all of your eggs are in one basket, then a market crash or dip in that area could ruin you financially. Having a diverse portfolio spreads things out so that you won’t be hurt so bad by market problems in a specific area. 

Learn When to Sell a Stock

Knowing when to sell a stock is a skill that you will want to hone over time. Sometimes getting greedy and hanging onto a stock for too long can lead to ample amounts of regret. You don’t want to hang onto a stock so long that it will start to lose value again. If you see a good opportunity to make some money on your investment, then it might be wise to take it. 

Avoid Emotional Attachment

Emotional attachment is something that will hold you back in the investment world. This is true whether you’re investing in stocks or real estate. Don’t let your emotions sway your judgment when you’re trying to make investment decisions. You should invest money based on data and trying to turn a profit rather than being emotionally invested in something.

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John J. Bowman Jr Accountant, John J. Bowman Jr. Accountant, personal finance, tax

How to Plan Your Income for Retirement

Planning for retirement is important if you want to cope with life after your days in the office. According to the Employee Benefit Research Institute, 4 out of 10 American workers are saving money for their retirement. Do you want to be part of these smart employees or the lost majority? Here are some of the things you need to know about preparing for retirement.

Setting Financial Goals
Saving is a process that demands commitment. Since retirement is definitely not your only saving goal, you should try striking a balance or prioritizing what is necessary and weighty. For instance, you could comfortably do away with lingering debts and saving for vacations, cars, homes, and lattes.

Saving for Retirement
Retirement involves more than just assessing the amount of saving you need. When planning for retirement, it’s is also important that you pay attention to where you save your money. Find the best investment or saving account. Take time to calculate how much you need to save for retirement as well.

Investing
While saving is simply amassing wealth, investing is the process of multiplying the wealth. Cash is not a great way to store your wealth, and there are thousands of reasons why. Before investing your money in any project, assess the reward-to-risk ratio and the return on investment. Which investments are more diversified, and when do you get in for maximum gains.

What Do You Invest In?
Are you ready to have your retirement saving work for you? Well, if that’s the case, setting up an investment portfolio should not be complicated. Acquaint yourself with principal retirement investment rules. Are you a DIY person, or will you need to hire the services of a financial adviser? If you want to manage your retirement saving yourself, it is recommended that you gather sufficient knowledge on investment strategies. If you will choose to work with a professional, get to know about the related costs.

Building Wealth
Retirement investing is not a phenomenon that occurs in one sitting. It is a process that will change with the dynamics of your employment as you move from one job to another or up the promotion ladder. You will also have to endure changes in the stock markets and meet family obligations. However, that does not necessarily mean that you will have to babysit your retirement investment. There are numerous ways to protect and manage your wealth and savings in the long haul.

This article was originally published on JBowmanAccountant.net

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blog, John J. Bowman Jr Accountant, John J. Bowman Jr. Accountant, personal finance, tax

California and Tennessee to Receive Tax Relief Following Disasters

California and Tennessee have been plagued by natural disasters in recent weeks. Californians have been affected by massive wildfires, while Tennesseeans have struggled with storm damage. In light of this, the federal government is offering affected citizens some tax relief options.

California wildfire victims residing in the counties of Lassen, Placer, Plumas, or Nevada, have until November 15th, 2021 to file individual and business returns or payments. This includes quarterly tax payments, excise tax returns, and quarterly payroll. November 15th will also serve as the new deadline for those who had received an extension on their 2020 returns.

Penalties on payments that were due between July 14th and July 29th of 2021 will also be forgiven if the payments were made by July 29.

Tennessee residents or business owners who were impacted by storm damage in Houston, Dickson, Humphreys, or Hickman county also qualify for tax relief. Those who had received an extension to their 2020 returns will now have until January 3rd, 2022 to file. That is also the new deadline for the quarterly tax payments that would’ve normally been due in September of 2021.

Penalties on payments that were due between August 21st and September 7th of 2021 will be dropped if the payments were made by September 7th of 2021.

If you’re a victim of the California fires or Tennessee storms and you receive a notice from the IRS that you’re being penalized for late filing or late payment but you believe you qualify for the tax extensions, you can contact the number on the notice. Explain your situation and they’ll be able to help you determine if you are eligible and if you are, they can remove the penalty from your file.

The IRS is making every attempt to automatically identify taxpayers who reside in the areas covered by the disaster extensions. When they identify these people, they apply the filing and payment relief options to their accounts. This means, that if you live in the affected areas mentioned, you shouldn’t need to contact the IRS to receive your tax extension.

If however, you are a victim of the fires or storm damage that lives outside of the mentioned counties, you will need to contact the IRS at (866) 562-5227 to request the tax relief.

This article was originally published on JBowmanAccountant.net

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Tax Breaks for Homeowners

While there are many opportunities to create financial wealth and safety in America, few are as powerful as owning a home. Even with decades of mortgage payments, the relative size of those payments usually declines over time as wages rise but the payments stay flat. Also, home values tend to go up over time, representing another way to secure wealth in a home.

Once a mortgage is paid off, families own their own homes and just have to pay taxes and maintenance, seriously freeing their regular income from one of life’s biggest expenses. The advantages don’t stop there. Multiple law enforcement agencies and municipal governments have learned that crime goes way down in communities where at least a third of the residents own their homes as compared to renting.

Buying a home isn’t cheap. In fact, it’s often the biggest single expense most families will make in their lifetimes. Fortunately, there are many tax breaks homeowners can use to make things more affordable.

While there are many opportunities to create financial wealth and safety in America, few are as powerful as owning a home. Even with decades of mortgage payments, the relative size of those payments usually declines over time as wages rise but the payments stay flat. Also, home values tend to go up over time, representing another way to secure wealth in a home.

Once a mortgage is paid off, families own their own homes and just have to pay taxes and maintenance, seriously freeing their regular income from one of life’s biggest expenses. The advantages don’t stop there. Multiple law enforcement agencies and municipal governments have learned that crime goes way down in communities where at least a third of the residents own their homes as compared to renting.

Buying a home isn’t cheap. In fact, it’s often the biggest single expense most families will make in their lifetimes. Fortunately, there are many tax breaks homeowners can use to make things more affordable.

  1. Capital Gains: If you sell your home and profit from it, then capital gains taxes might apply. However, if it was your primary residence, you might be able to keep capital gains without them getting taxed.
  2. Discount Points: When you get a mortgage, you might get to buy discount points that lower the interest rate applied to the loan. Points you buy to lower the interest rate are tax-deductible.
  3. Home Equity Loan Interest: This is just like having a second mortgage. You can deduct the interest you pay on a home equity loan if you took the funds for home improvements.
  4. Home Office Costs: The actual details are up to the IRS on this one, but home office space might get you tax breaks.
  5. Mortgage Insurance: Also known as PMI or private mortgage insurance, it’s there to give your lender protection if you can’t keep up with mortgage payments. You can itemize the cost of this insurance.
  6. Mortgage Interest: The mortgage interest deduction lets you lower taxable income if you do an itemized deduction.
  7. Necessary Improvements: The scope of what is ‘necessary’ is up to the IRS, unfortunately, but certain improvements can qualify as tax deductions.
  8. Property Taxes: These are often applied at the state and municipal levels. Depending on how you file, you can deduct $5,000 to $10,000 from your federal taxes.

This article was originally published on JBowmanAccountant.net

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Four Purchases That Should Never be Made With a Debit Card

Although debit cards are extremely convenient, they aren’t always the right choice for payments. Under some circumstances, it’s actually more beneficial to use a credit card. Here are four things that should always be paid for with a credit card instead of a debit card.

Furniture and Appliances

Large home purchases, such as furniture and appliances, should always be made with a credit card. These purchases are large enough that a mistake by the delivery team or the manufacturer can cost buyers thousands of dollars. With a credit card, it’s possible to dispute the charges, even if the seller isn’t willing to arrange a refund directly. In addition, the size of these purchases means that even 1-2 percent cashback will add up to a considerable sum of money.

Car Rentals

When renting a car, it’s almost imperative to use a credit card. Even if the rental company will allow renters to pay with a debit card, they should expect to pay a large additional fee in order to do so. Rental car companies also tend to run credit checks on renters who pay with debit cards. This, in turn, can cause damage to the renter’s credit score by adding an unnecessary hard inquiry. To avoid this hassle and expense, anyone renting a car should be prepared to pay with a credit card.

Recurring Payments

People with memberships and subscriptions often make the mistake of billing their bank accounts directly through their debit cards. While there’s little risk of losing money this way, credit card rewards on these recurring payments can add up over time to significant amounts. Points, miles, and cashback rewards can all be built on recurring payments with no extra effort. Given this fact, it rarely makes sense to make these recurring payments using anything other than a credit card.

Online Purchases

Unfortunately, online scams are everywhere these days. Sellers who bait and switch their buyers or fail to deliver at all are quite common, even on major online platforms. Credit cards offer a degree of protection against this kind of behavior by allowing buyers to dispute charges and get their money back.

While debit cards certainly have their place, they aren’t for everything. These four types of purchases are generally best made with credit cards, as debit cards introduce higher risks or lower rewards in these cases.

This article was originally published on JBowmanAccountant.org

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John J. Bowman Jr. Accountant, personal finance, tax, Uncategorized

Preparing for Tax Season

Tax season can be a stressful, but rewarding time, depending on your work and financial situation.  With tax time right around the corner, you’re probably anticipating receiving your W-2 from your employer in the mail, and any other necessary documents, within the next few weeks.  Today, your taxes can be managed in numerous ways from a personal accountant, a nationwide accounting service, or even, an app on your phone that doesn’t require a visit to an office; the way you choose to have your taxes done is really based on your personal preference.  One thing, however, that everyone has in common regardless of how your taxes are done, is how you should prepare for tax time to make it easy on yourself, or your tax professional. Here are a few key ways to better prepare for tax time:

Figure Out Your Preference

As previously mentioned, today, your taxes can be done in various ways.  The first step to preparing for tax time, is figuring out how, and who, you want to do your taxes.  Do you plan on doing them yourself? Or would you prefer to have them done by an accountant or a tax-preparation service?  Keep a few things in mind. If you plan to do them yourself, you want to make sure you have all of the right information and know about the deductions that you’re entitled to.  If you plan on hiring an accountant or tax-preparation service, make sure you do the necessary research so you know who you’re working with.

Get Your Forms in Order

Everyone has a different financial situation, and there are multiple tax forms one will need depending on their situation.  To get yourself best prepared, figure out which forms are necessary for you during tax time, and get them in order. If you’re unsure, you can always take a look at the IRS website or consult a professional you may know.  

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This article was originally published on jbowmanaccountant.info 

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personal finance

Tax Breaks for First-Time Home Buyers

Buying your first home is an expensive endeavor. Yet there are a number of tax credits that first-time homebuyers can take advantage of. Sometimes congress changes the available tax breaks or adjusts certain aspects of the law. Therefore, you should keep an eye on the tax law when you get ready to file your taxes. Below are some of the most popular tax credits for first-time homebuyers.

Points Deduction

If you paid points when getting your mortgage, you may be eligible for a deduction. In order to take advantage of this deduction, your settlement contract has to make reference to the points. Plus you will have to itemize when filing your taxes instead of using the standard deduction.

Property Tax Deductions

Property taxes can be deducted when you itemize on your tax return. First-time homebuyers should definitely take advantage of this deduction, but it’s not limited to first-time homebuyers. In order to claim this deduction, the property should be your main residence or a vacation home—not a business property.

Mortgage Interest Credit

Claiming a mortgage interest credit can lower the amount of taxes you owe. If you want to take advantage of this credit, you have to make sure you received a Mortgage Credit Certificate. The certificate is usually sent to you by your local government when you first receive your mortgage, and it lists how much interest the credit is worth. If you take advantage of the mortgage interest credit and the mortgage interest deduction, the credit will be reduced based on how much of a deduction you claim.

Mortgage Interest Deduction

A home mortgage interest deduction is one of the most popular tax credits for new homeowners. When it comes time to file your taxes, the bank or loan provider will mail you a tax form called Form 1098. The form details how much you paid in interest for the previous tax year. New homeowners should definitely take advantage of this deduction since mortgage payments have a higher percentage of interest than principal in the beginning. Keep in mind that in order to deduct home mortgage interest, you will have to itemize. For many homeowners, itemized deductions can add up to be larger than the standard deduction.

IRA Withdrawals

Typically when you make withdrawals from your IRA before you are 59 ½ years old you face a 10% penalty. However, when you use the withdrawals for a home purchase this penalty can be waived. The caveat is that you cannot withdraw more than $10,000.

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Learn More About These 5 Popular Tax Credits

There are a number of tax credits that you need to be aware of in order to be able to retain more of your income in spite of paying taxes. Such tax credits exist mainly for middle and low-income people and help you to keep most of your annual income from going into paying excessive taxes.

When you are able to identify tax credits that apply to you in particular, then the process of filing taxes at the end of the financial year is likely to become a whole lot easier than usual.

Earned Income Tax Credit

The first credit to consider is the Earned Income Tax Credit or EITC which was established in 1975. It is phased in accordance with filing status and is based on investment income, earned income, and gross income. In order to qualify for this tax credit, you need to be younger than sixty-five years and older than twenty-five years. Learn more here.

American Opportunity Tax Credit

The American Opportunity Tax Credit has been designed to help meet the expenses associated with higher education. The full credit will be available to you if your annual gross income is $80,000 or $160,000 if you have a partner.

Lifetime Learning Credit

The Lifetime Learning Credit is meant to meet expenses that are commonly associated with post-secondary education. It is not just applicable for the first four years of secondary education but rather any stage of post-secondary education. The credit is also made available to you even if you are just pursuing a certification and not a degree.

Child and Dependent Care Credit

As the name suggests, this is a tax credit that applies to you if you are a parent and wish to defray costs associated with daycare or babysitting. You can use this credit if you are a single parent who has a dependent child who is under 13 years of age and you need to be away to look for work or be at work.

Savers Tax Credit

If you are a retired professional then this tax credit applies to you. If you make a contribution to retirement plans in the course of your professional life, then you can also use this tax credit quite easily.

By keeping the above tax credit options in mind, you will be able to save quite a bit in taxes and retain more of your hard earned income.

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