"When there is an income tax, the just man will pay more and the unjust less on the same amount of income." - Plato

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Three Things to Keep in Mind When Making Charitable Gifts

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charitable gifts

In 2017, Americans gave an estimated $410 billion in charitable gifts to organizations. This has continued the upward trend of giving we’ve seen in the U.S. in recent years. The majority of this giving was done by individuals. However, before you donate any of your financial assets, you will want to consider each of the following points.

1. The Reputation of the Charity

It is always important to be informed about the charity and its reputation before donating. Research the organization before donating a penny. Any worthwhile charity will spend 75% of its income on programs and upkeep rather than administrative costs. You may be able to find this information in the charity’s annual report. Considering these things before you donate financial assets as charitable gifts you will ensure you are supporting a good cause. It also helps you decide whether or not it fits into your financial plan.

2. Your Portfolio Balance

Donating financial assets to charity means you are also taking them out of your portfolio. You’ll want to consider how getting rid of certain assets will impact your overall finances and the balance of your portfolio. If you want your portfolio to grow, you won’t want to donate all of your growth-oriented stocks. Be sure you aren’t donating stocks that will impact your endgame. Consider consulting a stock advisor or financial professional to ensure the assets you are giving as charitable gifts won’t hinder your long-term goals.

3. Taxes

Donations made to qualified 501(c)(3) organizations are tax-deductible if you itemize your return. After the recent changes made to the tax law, the standard deduction has increased to $24,000 for married couples and $12,000 for singles. Because of this, many people have less incentive to make charitable gifts (at least for tax reasons).

However, if you donate appreciated stocks you may be permitted to deduct the full fair market value of the gift. This is true even if the amount you paid is only a fraction of the value it is today. On top of that, you may not be subjected to capital gains tax for stocks you sold or gifted to charity.

Another possible way to make a tax-deductible donation is using money from your IRA. After you turn 70 1/2 years old, you are required to begin withdrawing money from your account. You will have to pay taxes on this but you can exclude up to $100,000 of your required minimum distributions per year from your taxable income if you gift the money to a qualified charity.

If you are considering donating any of these appreciated assets to charity, consult your tax advisor before doing so.

Readers, are you giving any charitable gifts this season? How have you decided where to donate?

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New From the IRS: Increase in 401(k) and IRA Contribution Limits

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2019 401k and IRA contribution limits

In what is likely to be considered an unfamiliar statement, we have good news from the IRS today. Those of us hoping to throw a little extra cash toward our retirement savings next year, now officially can, with the announcement of new 401(k) and IRA contribution limits.

Every year around this time, the IRS makes a similar announcement detailing the updates for contribution limits and income thresholds. And for 2019, today is that day. According to the IRS, these increases are in response to “cost of living adjustments” and are effective for the 2019 tax year starting on January 1, 2019.

Here are a few highlights you’ll be interested in:

Highlights of the New 401(k) and IRA Contribution Limits

  • Increase in 401 (k) 403(b), most 457 plans and the federal Thrift Savings Plan to $19,000
  • Increase in contribution limit for IRAs to $6,000
  • Changes to phase-out ranges for IRAs
  • Changes to phase-out ranges for Roth IRAs
  • Change in the income limit for the Saver’s Credit for low- and moderate-income workers

From the IRS press release:

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2019:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $64,000 to $74,000, up from $63,000 to $73,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $103,000 to $123,000, up from $101,000 to $121,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000, up from $189,000 and $199,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Is this good news for you? Share your thoughts in the comments below.

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Online Shoppers Need to Know About These New Tax Changes

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online sales tax

A Supreme Court ruling in June may make your online shopping more expensive. The court decided that South Dakota is allowed to require online retailers of a certain size to collect state sales tax. They could collect regardless of whether the business has a physical presence in the state. This paves the way for other states to act in kind.

Which States Can Have Online Sales Tax?

To put it simply, any state that charges a sales tax on retail store purchase can have online sales tax too. In many cases, states already require companies that have a physical presence in the state to collect sales tax on online purchases. However, the recent Supreme Court decision gives states the ability to extend these charges further.

As of July 1, 2018, Hawaii, Kentucky, and Vermont implemented legislation for the collect on sales tax from remote sellers. During the fall and winter of this year, Alabama, Connecticut, Georgia, Illinois, North Dakota, and Wisconsin are all following suit.

Several other states, including California, Kansas, and New York, have similar legislation in the works.

Will Online Sales Tax Be at State or Local Rates?

If you live in a state with sales tax, where you shop typically affects the tax rate. Often, sales tax rates fluctuate from one city to the next, as municipalities can add additional taxes on top of what the state charges.

The same rules may apply to online sales tax, depending on your state’s legislation regarding its collection. If your city has sales tax on top of state tax, your online purchases might use the higher rate.

If you want to estimate your sales tax in advance, check online for information about the rate associated with the delivery address. In many cases, where the item is going will determine which rate applies.

In cases where a person lives in a state with sales tax, but the package destination is going to a location that doesn’t charge it, it’s possible that you won’t have to pay sales tax. For example, if you live in Washington State (which has sales tax), but the package is going to Oregon (which does not have sales tax), you might not have to pay an online sales tax.

Which Purchases Are Most Likely to Be Affected by the New Legislation?

In many cases, midsize retailers with an online presence will be the source of the greatest impact. Most states have thresholds a business must cross before the tax collection requirement kicks in. Small businesses may fall below those lines.

For example, in South Dakota, a business must have at least $100,000 in sales or manage 200 transactions in the state before they have to collect sales tax on online purchases.

Most large corporations, like Amazon and Walmart, already collect online sales tax in every state with the requirement. The amount you pay at stores like those won’t change since they already have online sales tax added to your total.

However, it could affect certain transactions through these giant retailers. For instance, Amazon does collect sales tax for direct purchases already. However, Amazon doesn’t calculate sales tax for third-party sellers in the larger Amazon marketplace. Depending on the third-party merchant’s sales volume, online sales tax may or not be part of your purchase, in accordance with your state’s legislation.

Are There Any Benefits to Online Sales Tax?

While it may not feel like online sales tax is a positive thing when you make a purchase, there are actually some benefits. First, states use sales taxes in a variety of ways. The money supports government operations, public education, and public welfare programs, for example.

Since states and cities will collect more in sales tax, funding certain projects may be easier. Precisely how they use the money varies from one location to the next, but you may actually experience some benefit personally.

Second, most shoppers who live in states with sales tax aren’t legally supposed to be making these purchases tax free. Instead, taxable purchases are subject to a “use tax,” an amount that buyers send to the state to compensate for the lack of sales tax.

However, most people either aren’t aware of use tax or merely choose not to pay it. Technically, in either case, that makes a person liable for penalties should their state enforce the rule and identify purchases that weren’t properly taxed.

While the rate at which states penalize people for failing to pay use tax is likely low, it is still a risk. There is often less risk in online sales tax collection, as it guarantees the purchase abides by the law.

Can You Avoid Online Sales Tax?

Technically, you can sidestep online sales tax by only shopping at retailers that don’t have to collect it. Usually, this will be smaller businesses or third-party sellers on large platforms who remain below the threshold.

However, that doesn’t mean you are legally in the clear. Many states with a sales tax also have use tax for out-of-state purchases, including online. If you don’t pay sales tax when shopping, you should pay the use tax instead. Otherwise, you can be subject to a range of penalties.

No State Sales Tax – No Online Sales Tax

It’s important to note that individuals who live in states without sales tax, won’t pay online sales tax either. Sales tax collection for online purchases align with state and local standards, so the new legislation doesn’t mean you’ll get stuck automatically paying taxes when you usually don’t.

While many shoppers will feel the pinch of new online sales taxes, that doesn’t mean you shouldn’t shop online. If you can find an item at a lower price, you’re still getting a deal, as long as shipping costs don’t offset the difference. Plus, it eliminates the need to worry about use tax, ensuring you aren’t accidentally on the wrong side of the law or stuck taking extra steps to pay what you owe.

Will online sales tax hinder your online shopping plans? Tell us your thoughts in the comments below.

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Everything You Need to Know About Tax Free Weekends

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Tax Free Weekend
The new school year is swiftly approaching and many parents are preparing to buy their children’s school supplies. To offer an opportunity for parents to save money, many states hold a tax-free weekend in late July, early August. The weekend offers a pass on sales tax on certain items including school supplies, books, clothing, electronics, and other items.

About Tax-Free Weekends

Select states participate in a tax-free weekend. Generally, it is timed to occur around the time school starts in the area. As mentioned above, a number of items are eligible for the tax break. To view specific items that will be tax-free, you’ll want to check your state government’s website. There may be certain categories, such as electronics, that have a price cap for the tax holiday. Local sales tax may also still apply in some cases.

Which States Have A Tax-Free Weekend?

Not all states participate in a tax-free holiday. However, folks living in Alabama, Arkansas, Connecticut, Florida, Iowa, Maryland, Mississippi, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and Wisconsin can all take advantage of their state’s tax-free weekend. Generally, they fall between August 1 and August 25.

It is also worth noting that Alaska, Delaware, Montana, New Hampshire, and Oregon do not have sales tax throughout the year. Connecticut, the District of Columbia, Florida, Maryland, Minnesota, New Jersey, New York, Pennsylvania, Texas, Vermont, and Virginia do not tax non-prescription drugs. These states also have lower taxes on food and clothing.

Clothing is completely tax-free in Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, and Rhode Island all year round.

Can I Shop Online During My States Tax-Free Weekend?

Yes, you can.

Qualifying purchases made online during your state’s tax-free weekend are eligible for the discount. Certain retailers will remove the sales tax from eligible purchases in your shopping cart. Some may require you to submit your receipt for reimbursement.

When is My State’s Tax-Free Weekend?

Unfortunately, if you live in Alabama, Tennessee, or Mississippi, you’ve already missed your state’s tax-free weekend. These states participated in the tax-free holiday in late July. You’ll still be able to take advantage of the great tax-free deals happening in the states below.

Arkansas

Arkansas’ tax-free holiday will be August 4 and August 5. You can get clothing and footwear items under $100 and $50 accessories tax-free. All school supplies will be tax-free in Arkansas (no limit).

Connecticut

You’ll be able to get a tax break on clothing and footwear under $100 August 19-25 in Connecticut.

Florida

Tax-free weekend is August 3-5 in Florida. Get a tax break on school supplies (up to $15 per item). Clothing items $60 and under will also be tax-free.

Iowa

Clothing and footwear will be tax-free in Iowa August 3-4.

Maryland

Maryland’s tax-free weekend is August 12-18. You will be able to get clothing and footwear items under $100 and $40 of your backpack purchase tax-free.

Missouri

August 3-5 is when Missouri is holding its tax-free holiday. Clothing under $100, school supplies ($50 per purchase), software ($350), computers ($1,500), and graphing calculators ($150).

New Mexico

New Mexico’s tax-free weekend is August 3-5. Get clothing and footwear items under $100, computers under $1,000, computer accessories under $500, and school supplies under $30 tax-free.

Ohio

August 3-5 is when Ohio has its tax-free weekend. Clothing items up to $75 each, school supplies up to $20 per item, and instructional materials ($20 per item) will all be included.

Oklahoma

Oklahoma’s tax-free holiday will be held August 3-5. Clothing and footwear items under $100 will be tax-free.

South Carolina

August 3-5 are the dates for South Carolina’s tax-free weekend. There is no limit to the items included. You will be able to get all accessories, bed and bath linens, clothing, computers, footwear, school supplies, and software tax-free.

Texas

Texas is holding its tax-free weekend August 10-12 this year. Get clothing and footwear items ($100 each), backpacks ($100), and school supplies ($100) tax-free during this period of time.

Virginia

Virginia will offer a tax break on school supplies ($20 per item) as well as clothing and footwear ($100 per item) August 3 through August 5.

Wisconsin

Wisconsin is holding its tax-free holiday August 1-5. Items included are clothing ($75 per item), Computers ($750) and computer supplies ($250 per item), and school supplies ($75 per item).

Getting The Most Out of A Tax-Free Weekend

If you’re looking to get the best deals available this tax-free weekend, there are a few things you’ll want to keep in mind before heading out.

  1. Be sure what you are buying is included in the tax-free holiday. As you may have noted above, certain items are excluded and there are caps on certain categories.
  2. Write a list. Writing a list can help you refrain from buying items you don’t need. If you’re headed out for school supplies, stick to that list. Don’t be tempted by other tax-free deals.
  3. Go out early. Many people will be crowding the stores over the tax-free weekend. Be sure to get out as early as possible to avoid the crowds. You’ll also want to hit the clothing section before others. This way, you’ll get in line for the dressing rooms first.
  4. Keep your receipts. This is a good rule of thumb for any purchase you may be able to deduct from your taxes later on. Some states or online stores, as mentioned above, will require you to submit your receipts for reimbursements.

Readers, are you planning to shop during your state’s tax-free weekend? Tell us about it in the comments below.

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Independent Contractor vs. Employee: Which Are You?

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contractor vs employee
When you first ponder the difference between being an independent contractor vs. employee, no large differences may come to mind. Normally, these individuals do a lot of the same work. Many times side-by-side in the same company. However, there are very important legal differences between the two employment statuses. So, before you take the gig labeling you as an independent contractor, here’s what you need to know.

What Defines an Independent Contractor?

If you’ve never been hired as an independent contractor, you may be wondering what the difference is. According to the Internal Revenue Service, businesses must examine the relationship between their organization and the worker to determine whether they are an employee or a contractor.

Worker classification is important to the IRS because it decides whether or not an employer is required to withhold income taxes, Social Security, Medicare and unemployment tax on wages paid to an employee. Payments made to independent contractors do not have these items withheld. Instead, they are required to file as self-employed and will need to save money to pay their taxes.

When it comes to the work being done, there is a slight difference between an independent contractor vs employee. Technically, an individual is an independent contractor if the employer only has the right to control the direct result of the work. They will not control what will be done or how. Determining your employment status will depend on the facts of your specific situation. There are also three areas that may help you determine your status.

How To Determine Your Status

  1. Behavioral Control: As stated above, if an employer directs or controls the work performed by an individual, then they are an employee. This type of job will have involved some type of training and will generally have guides and rulebooks.
  2. Financial Control: Generally, employers will invest time and/or money into an employee. The same isn’t always said of an independent contractor. There is often the opportunity for loss, as well as profit. They are generally paid a flat fee instead of an hourly rate or salary.
  3. Working Relationship: Businesses providing benefits for individuals who work there tend to hire employees, not contractors. There is also a sense of permanency to the working relationship between the employer and employee. If a contract is present, you are likely an independent contractor, though this isn’t always the case.

Independent Contractor vs Employee

Those aren’t the only factors though. The chart below lists some distinct (and important) differences between being a contractor and an employee.

EMPLOYEE INDEPENDENT CONTRACTOR
Generally only has one employer. May provide services to multiple businesses at one time.
Has a set schedule for work. Sets their own schedule.
There is a location for an office that he/she travels to for work. Has a home office or pays for office space.
Oftentimes, employees receive benefits like health insurance. No benefits, like health insurane or 401K, are redeemed by contractors.
Directly under the control of the employer. Works independent of the employer.
Under the control of the employer, an employee does tasks as they were trained to do them in the workplace. Has complete control over how projects are completed.
Doesn’t usually spend money or invest in work. Will incur costs associated with work and may invest money into furthering education or items needed for work.
Employees have general experience and education. They receive further training on the job. The entire work relationship is built based on prior experience and education.
Income tax, Social Security and Medicare tax are withheld from pay. No taxes are withheld from pay. However, contractors are encouraged to file taxes quarterly instead of annually, which can be an added stress.
Employees are eligible for unemployment benefits if laid off. Contractors are not eligible for unemployment.
Worker’s compensation is available if an injury occurs on the job. They are unable to collect worker’s comp.
Employers have to have a good cause to fire you and give notice, unless you live in an “at will” state. Unless a term is specified in the contract, the employer can fire you at any time.
Compensation for employees is covered under federal and state wage laws (minimum wage and overtime). Contractors are only paid in the terms of their contract. No overtime hours are paid.
There are workplace safety and discrimination laws protecting employees. Independent contractors are not protected under employment laws mentioned to the left.
In some states, you may have the option to join a union. There are generally no unions for independent contractors. However, some independent unions may be formed, such as The Freelancers Union.

Do you know whether you’re an independent contractor or an employee yet? The IRS has a portion of its website dedicated to small businesses and self-employed individuals with helpful resources.

Benefits of Being a Contractor

The biggest benefits of being an independent contractor compared to working as an employee have to do with opportunity, time, and money. First, most employees are required to work a full 40 hours per week and aren’t able to work for competing companies. Contractors don’t have those limitations. If they are contracted for a project with a media company and another media company approaches them for work, they can take it (as long as their contract doesn’t explicitly say they can’t).

The next perk is being able to set up your own schedule. Contractors are able to pick up side jobs and additional work because they are able to create the hours they work.

Contractors also normally come with a pre-determined price tag. They have a set hourly rate or they will quote employers on a project. This leaves room for negotiation in pay.

The Downside

Although that all sounds great, there are a few downsides to being an independent contractor. The first downer is you don’t normally get benefits and they can be difficult to purchase and set up on your own.

Job security can also be an issue with contractors. Even though they have the power to “create” work for themselves, employers can end their contract at any time. It also lands on the contractor if anything goes wrong with a project, meaning they will have to pay for time and inventory lost.

Lastly, doing your taxes as an independent contractor can be tough. It seems great when you get a full paycheck with no taxes withheld but Tax Day comes faster than you’d think and you will pay.

Perks of Having Employee Status

There are no real costs to having employee status. You won’t likely have to pay any startup costs or any costs associated with your place of work.

On top of that, employees are given a steady pay rate (either hourly or salary). Oftentimes, they are also awarded bonuses if a project goes well. This is a reliable source of income that contractors don’t always have.

As mentioned above, employees also have access to benefits like health insurance and 401K accounts through their workplace. Some companies offer even more including things like a gym membership, food vouchers, and paid travel.

Another perk is getting is having the opportunity to work with and collaborate with other people. Many independent contractors work in solitude. You’ll also have room for advancement as an employee, whereas a contractor is simply working to better his/her own business.

Cons of Being an Employee

One downside of being an employee vs an independent contractor is you have no rights to your intellectual property. This means that any idea you come up with, project you complete, or graphic you design, belongs to your employer. Contractors generally retain these rights.

Another potential downer when it comes to being an employee is working that 9 to 5 every single day. Having the ability to make your own schedule can be liberating.

Finally, employees can hit a point where they aren’t able to make any more money and they aren’t able to climb the corporate ladder any further. Contractors are always able to call clients and get business rolling if they need to make more. Not to mention, they name their own price.

Readers, did you know all the differences between an independent contractor vs employee? Which are you?

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What’s the Best Way To Settle Your IRS Tax Bill?

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Settle Your IRS Tax Bill
It’s official: The last day to settle your federal tax debt without incurring penalties. Do you have an IRS tax bill?

Finding out that you owe the IRS additional money can be disheartening, but it’s something that you have to handle.

Luckily, there are a number of ways you can settle your IRS tax debt. In most cases, the process is easy. Plus, you can use a variety of payment methods to get the job done.

If you owe the IRS additional taxes, here’s what you can do.

Settle Your IRS Tax Bill with Direct Pay

One of the fastest, most secure, and least expensive options is to use Direct Pay. First, you’ll need to sign up for an account to access the system. Then you can make a payment using your bank account.

The Direct Pay system walks you through the process, and there are only a few steps. Typically, you’ll need to select the tax year, verify your identity, and enter the payment amount.

You can elect to receive an email confirmation of the transaction (which is wise), so you’ll have a record as you settle your IRS tax debt.

Use a Credit or Debit Card

If you prefer to use a credit or debit card to settle your tax debt, you have a few options. There are multiple payment processors you can use, so you’ll need to choose the right one for you.

The process is typically quick, although it varies slightly from one processor to the next. It is important to note that there is a fee for paying with a card, unlike when you use Direct Pay.

Usually, debit cards have flat fees. Credit card fees are typically a percentage of the amount you’re paying to settle your IRS tax debt. This means that the credit card fees can be high, depending on how much you owe.

Some processors also accept payments through digital wallets, so that option is available as well.

Set Up a Payment Plan with the IRS

If you can’t settle your IRS tax debt now, then consider setting up a payment plan. Qualifying taxpayers can pay what they owe over a period of up to three years, allowing them to spread out the burden.

Not everyone qualifies for a payment plan. For a long-term repayment plan or installment agreement, you can’t owe more than $50,000. For a short-term plan, you must owe $100,000 or less.

There are set-up fees for some payment plans, although the fees are typically low. However, in some cases there’s interest on top of that. You can apply online and may have to set up direct debits depending on how much you owe.

Even though tax day is here, there is still time to settle your IRS tax debt if you use one of the methods above. Alternatives like mailing a paper check, might not make it to the IRS in time and could lead to penalties and interest.

Have you ever used one of the methods above? Share your experience in the comments section below.

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Learn more about taxes by checking out more of our coverage of this year’s filing season: