Tax Season 2017

New year, new tax questions.
Throw em up here.

Last year we had discussed the MyRA.gov ROTH style investment vehicle.

I ended up opening an account in December 2016 to see how it works and throw some money is.
My December statement came back showing 2.44%
Its a pretty attractive rate considering there is no lock in terms, and its backed by the federal government to not lose value.
Great idea for any of you guys thinking about a way to start funding some kind of retirement.
You have until mid April to get the ball rolling on 2016 contributions.

Wife and I are getting divorced as we speak. Should we each file a separate return or should we still file together? We are amicable but the petition was submitted to the courts on 12/26ish. This is in WI. The earliest this will be finalized is April assuming things go quickly.

How can I lower my taxable income enough to claim my student loan interest expense? This is the first year I've exceeded the income limit and I'm pissed about not being able to write down the $4000 interest fee.

What are some common tax deductions the online filing softwares usually miss? Anything we should keep an eye out for?

married, wife+child dependent on me, made first mortgage payment in dec 2016, lol

not sure if we are going to file married/separate or married/joint yet. H&R fees may be through the roof this year.

chestercheeto48 said:

Wife and I are getting divorced as we speak. Should we each file a separate return or should we still file together? We are amicable but the petition was submitted to the courts on 12/26ish. This is in WI. The earliest this will be finalized is April assuming things go quickly.

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If things are cool with the ex then I would recommend you use the same tax preparer and see what method provides the most benefit.
We typically do the return jointly, then run a filing status optimization to see which way provides the most benefit.
Things get messy when you get back a greater joint refund, and then the question comes back, well can you tell us who should get what % of the refund?
If you were legally separated and living apart there is the potential to both file as single, but this is a bit of a gray area and you should read up on the laws and determine your risk tolerance.
Not sure if there are kids in the mix but the HOH and single can really provide the maximum tax savings here.

get_nick said:

How can I lower my taxable income enough to claim my student loan interest expense? This is the first year I've exceeded the income limit and I'm pissed about not being able to write down the $4000 interest fee.What are some common tax deductions the online filing softwares usually miss? Anything we should keep an eye out for?

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Depends on how big the gap is, but I'm going to assume there is no legitimate way to close that gap. Student loan interest deduction is capped at 2500.
Do you have a high deductible health insurance plan? Are you covered by a retirement plan at work? If no to either of those you can look into funding an HSA or IRA.
Phaseout starts at 65k, ends at 80k. If you were at 85k and did an IRA contribution of 5500, it would lower your income to under 80k, but due to the phaseout percentage your student loan interest would be limited from 2500 to $82. Hardly worth the 5500 investment.
Depending on your student loan interest rate I would probably recommend paying that off as a top priority. Guessing its in the 7-8% range.

TurboMirage said:

married, wife+child dependent on me, made first mortgage payment in dec 2016, lol
not sure if we are going to file married/separate or married/joint yet. H&R fees may be through the roof this year.

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Same as 2 above, prepare a joint return and then run the filing status optimization.
9 times out of 10 it will save you money by filing married filing jointly.
as we always tell clients... getting married was the worst tax decision you can make, especially with one child in the mix you qualified for Single status on one return and Head of Household on the other.

No questions this year yet. Just looking forward to how much the ACA is going to screw me this year.

reckedracing said:

If things are cool with the ex then I would recommend you use the same tax preparer and see what method provides the most benefit.
We typically do the return jointly, then run a filing status optimization to see which way provides the most benefit.
Things get messy when you get back a greater joint refund, and then the question comes back, well can you tell us who should get what % of the refund?
If you were legally separated and living apart there is the potential to both file as single, but this is a bit of a gray area and you should read up on the laws and determine your risk tolerance.
Not sure if there are kids in the mix but the HOH and single can really provide the maximum tax savings here.

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No kids and in the past I just used H&R software. This year I told her that we should probably go to a professional to get it prep'd. Right now the plan is to put it all into our joint savings account to be divided like everything else. My plan is to use the cash split to pay down the equity I would owe her in the house as I plan on keeping that.

reckedracing said:

as we always tell clients... getting married was the worst tax decision you can make, especially with one child in the mix you qualified for Single status on one return and Head of Household on the other.

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This is an interesting topic.. I was always under the assumption that there's better rates for MfJ returns.

jamesA said:

No questions this year yet. Just looking forward to how much the ACA is going to screw me this year.

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If you don't have health insurance its going to screw you more than last year, potentially an extra 1/3 - to double over last year, depending on your income level.

Briansol said:

This is an interesting topic.. I was always under the assumption that there's better rates for MfJ returns.

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they call it the marriage tax penalty, but there can also be a marriage bonus. depends on the income levels of both parties going into the marriage, and other factors.
http://taxfoundation.org/article/understanding-marriage-penalty-and-marriage-bonus
I've seen the filing status optimization come out with lots of different scenarios. I have a couple clients I need to file as MFS every single year, huge pain in the ass.
One because it saves them some trivial amount, usually less than 100. And one couple that lives in different states, so they file a joint federal and separate states so they are only subject to one local tax rate each.
HUGE pain in the ass.

chestercheeto48 said:

No kids and in the past I just used H&R software. This year I told her that we should probably go to a professional to get it prep'd. Right now the plan is to put it all into our joint savings account to be divided like everything else. My plan is to use the cash split to pay down the equity I would owe her in the house as I plan on keeping that.

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equal split might be equitable, and it might not. too many factors to determine on the internet.
Let's say you work and have 20-25% tax withholding, and she doesn't work. Then technically every penny of that refund money was withheld from your paycheck, and it belongs to you.
Lets say you work and only withhold 10%, and she works and makes 100k and withholds 30%. Then most likely you are under withheld and the refund money coming back is actually hers, plus the money that went to offset your under-withholding.
Lots of factors can affect the outcome. We hate to get into the middle of couple but sometimes one party wants more than they really deserve, so it can be tricky to explain the numbers behind it.
50/50 is simplier and easier, but not always fair to both parties.

reckedracing said:

Depends on how big the gap is, but I'm going to assume there is no legitimate way to close that gap. Student loan interest deduction is capped at 2500.
Do you have a high deductible health insurance plan? Are you covered by a retirement plan at work? If no to either of those you can look into funding an HSA or IRA.
Phaseout starts at 65k, ends at 80k. If you were at 85k and did an IRA contribution of 5500, it would lower your income to under 80k, but due to the phaseout percentage your student loan interest would be limited from 2500 to $82. Hardly worth the 5500 investment.
Depending on your student loan interest rate I would probably recommend paying that off as a top priority. Guessing its in the 7-8% range.

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yeah, i'm totally screwed on that one. not gonna get down to $80k. and student loans are at a weighted average of 6.19%. Stupid MBA was expensive.

get_nick said:

Stupid MBA was expensive.

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not to get too far off topic but, was it worth the investment?

invisibledemon said:

not to get too far off topic but, was it worth the investment?

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For me, yes. For a few reason. It strengthened a few key skills that I didn't have a good background on (accounting and finance). It gave me a holistic view of business and strategy. I was able to use it to leverage my way into a position I couldn't have otherwise. I worked my ass off to get the most value out of it. Some people will spend $100k on their MBA and be no better off. I worked my ass off to get the right classes, learn a lot, and show it through my GPA. You have to be VERY focused if you want it to be anything more than "undergrad 2.0".

Career salary growth: Started evening program in Sep. 2010- job salary $xx,xxx. Moved to mba job #1 in Sep. 2012-salary 2*$xx,xxx. Moved to job #2 in 2015-salary 4*$xx,xxx.

I switched industries and a slight angle on career role. A little luck and a shitload of hard work paid off. Definitely a unique story, but it's an example of success. Feel free to PM me if you want to get into more detail about anything.

reckedracing said:

http://taxfoundation.org/article/understanding-marriage-penalty-and-marriage-bonus
.

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I read through that site a bit...

I think the foundation of info is solid... the brackets are not straight 1 for 1 as described as the pay scales up by combining incomes.
200k couple pays more than 100k each, yes,
But it doesn't take into account that you can also shelter twice the money too. another 18000 in a 401(k), an extra 6000 if both over 55, with emp match up to another 36k in defined benefit... plus another 5500 in a roth ira, plus 1k if over 55k, and another 3350 in an hsa to go family plan. That bridges the gap quite well as the penalty is about 10%, but you can easily shelter over 20% with the means to do so.

Briansol said:

I read through that site a bit...

I think the foundation of info is solid... the brackets are not straight 1 for 1 as described as the pay scales up by combining incomes.
200k couple pays more than 100k each, yes,
But it doesn't take into account that you can also shelter twice the money too. another 18000 in a 401(k), an extra 6000 if both over 55, with emp match up to another 36k in defined benefit... plus another 5500 in a roth ira, plus 1k if over 55k, and another 3350 in an hsa to go family plan. That bridges the gap quite well as the penalty is about 10%, but you can easily shelter over 20% with the means to do so.

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I'm not quite following. Are you saying if you file separately you can shelter more money? I'm curious because I file jointly now, but my wife has no income. She will start working again later this year or next year and I've always been pissed off that I max out at 18k for 401k and get no tax benefit by doing any ira.

no... my point was that the above website doesn't account for any deductions other than the standard deduction. And when you have dual incomes like that it's not 18k off the top, it's 36k into investment accounts possible.... thus it's a faster drop down the brackets even though the brackets are wider so the net effect is about the same from what I can see it.

100k each people S + mortgage int and other write offs of 15k + 18k traditional puts under the 91xxx limit to stay in 25%
200k combined MfJ + one bigger write off set (not even doubled) of say 20k + 36k traditional gets you under the 153xxx cut off to stay in 25% as well


The ROTH IRA is not for a tax benefit now... and arguably not really for the tax free withdrawal later... it's advantage is that it has no required RMDs at age 70 like every other advantaged account has. Backdoor stuff it if you make too much to fill it directly. You'll thank your older self that you can keep yourself vested and not trying to re-earn what you took out to not deplete your nest vesting nest egg just to place it in taxable accounts so you get taxed on the earnings again

@B16 You should fund a "Spousal IRA" set for your wife... looks like you qualify and can shelter/save more money.
http://www.fool.com/retirement/general/2016/03/29/spousal-ira-rules-for-couples-in-2016.aspx

call fidelity or vanguard or something and open one today for 2016 before it's too late. (if i'm not mistake, it's not april 15th, its jan 30 deadline for these to hit the last tax year... maybe wrecked knows more about these)

Aaand, income limits fuck me again...

Got married this year. With my wife and my salary we don't get a marriage penalty or marriage bonus. We do standard deductions so we're going to itemize and run it through both ways to see which is better. Only write offs we have are interest on student loan interest and my tuition/school expenses I incurred this year as we're barely under the $160k.

Do i have to put box 14 on my tax filing? it's already been included in my income on box 1 and there's no tax code to include either.

most software has an input for box 14
if its already included in box 1 then it shouldn't impact your return

looks at the back of the w-2 to see if it tells you what each abbreviation stands for, and if it gives you a place it should appear on the return.
this link might help...
https://www.taxact.com/support/649/2016/form-w-2-box-14-other-information