How to Correct Tax Return Errors

No matter how many times you check or how accurate you believe your information to be, mistakes happen. When mistakes happen, it is not the end of the world, but mistakes on tax forms can become headaches.

You may use a tax professional, some form of tax software, or complete taxes the old fashioned way; however you do your taxes, you should check them thoroughly before filing. While there are ways to make corrections once you’ve submitted, most of them do entail waiting additional time for a refund and increased time and paperwork. Here are some of the ways to amend those mistakes as quickly as possible.

Let the IRS Fix It

Sometimes, calculations are off by just a few dollars. If you’ve made a small error that does not greatly impact your return, the IRS may fix it for you. If this is the case, the IRS will send a letter explaining the adjustments and offering advice on next steps, should there be any. This is the easiest solution and is actually commonplace for simple and easily-corrected mistakes. 

Send an Amended Return

If the IRS does not fix the mistake that you know you made, an amended return can be used for correcting the large majority of mistakes. Simply download and fill out a 1040x form from the IRS website. This is the best blanket solution on the list, as it covers errors great and small.

Have a Copy of the Initial Return Handy

If you are correcting a mistake, you must have a copy of the initial return that you filed. This return will be used to spot the mistake and any subsequent issue that would need to be changed.

Check Your Math While Making Corrections

When filing your taxes, one incorrect line on your return can affect the outcome of everything else. You cannot just go in and change the error that you made and move on. You must also go through the rest of the return and make necessary corrections based on the initial error. 

Avoid e-Filing Amended Returns

The ability to electronically file your taxes is one of the best things to come from the Internet age. Refunds come more quickly, and there is a lot less paperwork to be mailed. This, however, is not an option for an amended return, so have envelopes and stamps ready. It may help to gauge the estimated time period between your mailing of the return and the IRS’s receipt of it.

Money Moves for Retirement

Retirement planning is one of the biggest financial concerns for many Americans. There are many considerations to make when it comes to savings—retirees should be aware of what income sources they will be relying on in their golden years. It’s also important to be aware of how long investors have before they will need to access those savings. Finally, it’s important to think about how long people expect to live in retirement, and what they estimate their expenses will be. These are the considerations that must be made to accommodate the aforementioned concerns.

Retirement Income Sources

There are many sources of income that retirees can utilize. Social security is a program that most people will qualify for, but it typically is not enough to get by. Some workers may also have a pension to count on, although that’s becoming increasingly rare. Thankfully, savings accounts are one area over which individuals have personal control. Annuities are also an option for savers. Many retirees also look to their property holdings, including real estate and collectibles, as key sources for income in their old age.

Compound Interest

One of the most basic but most important lessons about retirement that everyone should know has to do with the power of compound interest. Compound interest is the accrual of money on interest over time. Saving a little bit while young can help workers build up a healthy amount of savings to fall back on during retirement. Additionally, tax-advantaged retirement accounts like 401(k)s and IRAs allow future retirees to put money aside and reap important tax benefits. However, even a standard savings account can be a good way to start saving. The older an investor gets, the more important it becomes to have money set aside in an account that won’t be touched. It’s also a good idea to look into catch-up deposits in tax-advantaged accounts. Sometimes, investors over 50 are able to exceed the maximum contributions allowed to the rest of the public.

Tax Considerations

Tax considerations should be a key guideline when choosing investments. In some cases, the gains made from selling a home are untaxed. Some investments are subject to capital gains taxes, even in retirement. Even tax-advantaged accounts like IRAs and 401(k)s can be subject to management fees. It’s a good idea to seek professional advice when it comes to specific investment decisions.  Reach out to a local financial advisor with any financial concerns!

How To Plan For Student Loan Payments

Many students get out of college and realize that they need to pay off their loans. With colleges sticker prices on the rise each year, it’s easy to feel overwhelmed by student debt. However, if by applying these tips, students can plan for debt and pay off their loans as quickly as possible. 

Consider Refinancing Your Student Loans

Some people may not know where to start, especially if their student debt is going to be quite high. If you fall into that camp, you could look into refinancing your loans. Refinancing your loans means that you use another loan to pay off your student loans.

If you have a stable job and you can find loans with lower interest, then you may want to refinance. This way, you pay off the student loans and then don’t have to pay as much money over time when you work on the other loan.

Set Money Aside Each Paycheck For Your Loans

You should focus on budgeting your money so that you can set aside some of that income from each paycheck. This way, you can always pay off that set amount with each paycheck. Such a consistent system will go a long way in helping you pay off those loans.

Some people may worry that it would take too long to use this approach, but consistent payments do offer a tremendous benefit. Yes, it may take some time, but this method helps you calculate when you’ll have that debt paid off by. As your financial situation changes, you can accurately pivot and recalculate to get a clear picture of your debt payment schedule.

Prioritize Your Student Loan Payments

People tend to push their loans to the side, but you need to prioritize your loan payments. Sure, you can buy a new phone or gourmet coffee, but you should consider putting that extra money towards your loans. If you prioritize your payments, then you can put all your extra money towards your loans. This will help you to pay them off sooner and reduce interest.

Conclusion

While student loans are scary to think about, keep in mind that you can pay them off with careful planning. Look at how much money you make, set aside specific amounts and continue to prioritize your loans until you pay them off. This way, you can overcome your loans and start saving money for life’s next big adventure.

When Should You Consult an Accountant for Tax Help?

When people are making plans to file their taxes, they may discover that there is a need for an accountant to help them complete the forms. Those who are uncomfortable with filing should seek an accountant that can help them make sense of the tax rules and what they need to do to file before the deadline. Unusual circumstances, such as changes in marital status and career, may call for additional assistance. In such instances, accountants are a taxpayer’s best friend.

Amended Taxes

Inevitably each year, taxpayers file erroneous forms. There may be mistakes and letters from the IRS that indicate that there is income that has not been accounted for, an incredibly stressful situation for everyone involved. If you’ve dealt with erroneous forms in the past, or if you’ve received notice from the IRS that this year’s submissions contain errors, seek out an accountant to help you readjust and refile. 

Owing Taxes

Anyone who owes taxes can benefit from involving an accountant in the process. After all, taxpayers may take the standard deduction when they could owe less or no money at all, all because they’re unsure how to itemize deductions. It’s an involved process, one that requires an expert eye. For this reason, professional accountants are there to help; by pointing out any overlooked itemized deductions, accountants can provide a better understanding of the deduction process.

Change of Status

Plenty of things can change in a year, not the least of which is household status. A single person that files as head of household may be unaware of changes in deductions when they get married. If you’re unsure about the best way to file taxes when your marital status changes, consider working alongside an accountant. 

First Time Tax Preparation

Filing taxes for the first time can be a confusing process. With all of the paperwork and math required for each form, it’s common for people to struggle to wrap their heads around everything. This situation is precisely what accountants handle regularly. Accountants want to help everyone ensure that all guidelines are followed and numbers are accurate. To pay taxes by the deadline, new taxpayers should schedule early consultations with local accountants. 

Four Easy Ways to Budget This Month

For some, creating and sticking to a budget is a simple task. For others, it’s a strenuous and seemingly impossible task. The temptation to eat out, splurge on clothes, and throw caution and cash to the wind can be huge, so it’s essential to find ways to stay on track. Here are four ways to create a budget that works and stick to it.

Meal Prep

In addition to various forms of outside entertainment, eating out is a considerable expense. Since most restaurants mark food up—sometimes as much as 300 percent—the only sure-fire way to save money on food is to cook meals at home. However, this is a lot more time-consuming and can be difficult for those without much cooking experience.

Take the time to plan meals, including the cost of ingredients, for at least a week’s worth of meals. Also, include the costs of snacks as well. One way to save on food is to buy in bulk. Look for items that can be purchased in larger quantities and divide up for later.

Set Up Autopay

Another way to stick to a budget is by setting up autopay. Instead of having to pay bills and charges every month manually, autopay lets budget-setters know what they pay and when. The same concept can also help track savings. Just have a set amount of money transferred each month into a savings account.

When it comes to paying utilities, look into budget billing. Customers pay a set amount for power and water. After a set time frame, they’re either refunded the difference or charged for any overages.

Entertain at Home

Simply put, going out is expensive. Everything from grabbing drinks to seeing a movie is expensive these days. Instead of breaking the budget, invite friends over and find ways to create a social atmosphere at home. Cocktails made at home cost half the price when ordered out. The same holds true for take-out. If your group wants pizza and a movie, rent a flick and make homemade pizza.

Track Success

Tracking success is a great motivator, so make sure you keep track of how much money you’ve saved over the month. After seeing positive results, you may feel even more motivated to stick to their budgets.

With a little planning, creating and sticking to a budget is easy. Since everyone has different needs, never compare budget planning. Finally, make sure that the budget isn’t so rigid that it’s impossible to follow. Just be sure to leave some wiggle room for the occasional splurge.

Where to Get a Loan Besides the Bank

When it comes to expenses, money can be a point of contention. With the cost of living and the need for appliances and machines on the rise, it’s not always easy for people to come out of expenditures with money in their pockets. For this reason, people often resort to loans to help keep themselves and their families afloat. While many people go straight to their local bank to take out a loan, there are other options that are not considered or even well-known. These are some of those lesser-known places to acquire loans.

A Credit Union

Acquiring a loan from a credit union is sometimes considered a better alternative to getting one from a bank. Credit unions can offer recipients lower fees and interest rates than a bank, which makes paying back the loan a lot easier on the wallet. However, there is a slight drawback to using a credit union. In order to qualify for a loan, people must be a member and meet their requirements. If you’re a member of a credit union such as Members 1st or PSECU, give customer service a call to learn more about how to qualify and what loans are offered.

A Payday Lender

A payday loan is a type of short-term loan amounting to, at most, $500. Often, these loans are taken out to cover unexpected expenses and late bills. Applying for one of these loans is simple; all you have to do is apply online or at a payday loan facility. 

While these loans are helpful in the short-term, there are a few drawbacks. To start, these loans must be paid back as soon as the recipient gets their next paycheck. Secondly, payday loans can be very expensive in terms of fees and interest. If the loan is not paid by the due date, the lender might extend it, but at the cost of tacking on additional fees. Think carefully about whether or not your situation calls for a payday loan.

A Pawnshop

There is one massive difference that pawnshop loans have over others; the shop won’t check credit scores or require an application. A pawnshop loan works like this; you take an item such as jewelry or an electronic to a pawn shop. Should the pawnbroker be interested in the item, they’ll offer a loan.

How much the recipient will receive varies on the overall value of what’s being pawned. Pawnshop loans are a great way to get money quickly, but this speed comes at the cost of substantially high interest rates. Extra fees may also be included, depending on the pawnshop.

Loans may be a surefire way of obtaining money, but they are a huge responsibility. It’s important that people consider all the factors of taking out and paying off a loan before making the investment. 

The Best Personal Finance Software

In the world of personal finance, there are some software programs that stand out from the rest. These programs make it much easier to manage budget and track spending within your household. If you’re looking for software to manage your personal finance, these are the programs you should check out.

Quick Books

If there is one program that has continued to stand out over the years when it comes to personal finance, it is QuickBooks. This software has become the cornerstone of personal financing for people who want to keep up with their household spending. The program allows people to set budgets and get running totals for their spending during the month. Users can see how much they deviate from the budget each month, and plan accordingly to save more in the next month. QuickBooks even offers the ability to compare previous years and see if a user’s spending has increased or decreased. With quick references and an easy budgeting interface, this is a great program for users who don’t want tons of fancy features.

Microsoft Money

Another program that stands out amongst personal finance software is Microsoft Money. This is a program that tends to work well for those that have already utilized Microsoft Excel spreadsheets over the years. Users have the ability to create formulas, track their spending, and create easy-to-manage documents.

The ability to add different categories of expenses becomes much easier with a program like Microsoft Money. It has a user-friendly interface that makes it easy for people that are not computer savvy to create documents of their personal finances. This program tends to be one of the favorites for people that like to create documents that can be saved in different formats. These documents can be exported to Excel spreadsheet or saved as PDF files, offering plenty of versatility depending on a user’s needs.

Mint

In the growing age of portable personal finance software, Mint is the finance tool that has gained a lot of attention with the younger crowd. Mint has offered the millennial generation a viable personal finance program that gives them access to an online platform that is not limited to their personal computers.

Mint users have the ability to add their credit and debit cards to track purchases without manually typing in everything that they buy. The Mint app for smartphones allows users to access their financial budgets whenever and wherever they want. 

4 Things You Should Know About The R&D Tax Credit

The Research and Development Tax Credit benefits almost any business, no matter the size, age, or industry. Since 1981, this incentive has offered reimbursement for innovative and highly-technical businesses. Here are four things you should know about the R&D Tax Credit.

It is available for many industries

From aerospace organizations to wineries and vineyards, several industries can reap the benefits of an R&D Tax Credit. Organizations within these industries must pass a four-part test to affirm that their research activities qualify for an R&D Tax Credit. The four parts of the test are:

  1. Technological in Nature – “Activities must fundamentally rely on the principles of physical or biological science, engineering, or computer science.”
  2. Permitted Purpose – “Activities must be performed in an attempt to improve performance, reliability, or quality of a new or existing business component.”
  3. Eliminate Uncertainty – “Activities intended to discover information that could eliminate technical uncertainty concerning the development or improvement of a product.”
  4. Experimentation – “All of the activities must include a process of experimentation including testing, modeling, simulating, systematic trial and error.”

It covers a variety of expenses

With all of the activity that goes on in a given business, it can be difficult to track your direct and indirect R&D expenses. However, taking note of those expenses is essential for receiving the appropriate tax benefits. As a rule, the major expenses that qualify are salaries and supplies and materials. For salaries, employees who work in R&D or directly manage those in R&D are covered. Supplies and materials covers anything from nails to computers.

It offers unique benefits to smaller companies

If your small company has gross receipts for five years or less that average less than $5 million, your company may be eligible for an R&D Tax Credit. This is the case even if your company does not owe any taxes, and the covered amount can reach up to $250,000 of a payroll offset. If your small business does not have credit for offsetting payroll taxes in a given quarter, you can carry that credit into a different quarter. However, to do this, you must not exceed the $250,000 limit.

It undergoes regular updates

The R&D Tax Credit does not behave exactly as it did over a quarter of a century ago. As industries and economies evolve, the R&D Tax Credit does, too. In particular, the removal of the Discovery Rule in 2003 redefined research activities as those that would be “new to the taxpayer” rather than “new to the world.” More recently, the Protecting American from Tax Hikes (PATH) Act ensured that small, mid-size, and startup businesses could benefit from R&D Tax Credits.

John J. Bowman, Jr. is an accountant and tax professional based out of Pittsburgh, Pennsylvania. Follow him on Twitter for more blog updates!

The Differences Between CFAs and CPAs

CFAs and CPAs may sound like the same thing, but their responsibilities differ. For people who are not familiar with the financial and investment industries, the differences between the two may not be that clear. While CFAs and CPAs are both financial professionals, these individuals travel along different educational and professional paths. 

What is a CFA?

A CFA, or chartered financial analyst, analyzes financial reports. Such reports include financial statements revolving around wealth planning and mutual and hedge funds. 

The job of a CFA, or a chartered financial analyst, is to analyze financial reports. These financial reports include financial statements that revolve around wealth planning and mutual and hedge funds. Typically, CFAs find employment with investment management companies, equity firms, and organizations that navigate mutual and hedge funds. In addition, CFAs can work with individuals to plan personal finances and offer advice on investing. 

The path to becoming a CFA involves a slew of experience, including four years of some mix of professional and educational experience. Typically, a bachelor’s degree or four years of professional experience are valid for becoming a CFA, and precede a triumvirate of exams to earn the CFA designation. Such a designation is awarded by the non-profit organization known as the CFA institute. This global organization lays out standards of professionalism and ethics in the investment industry. 

What is a CPA?

A CPA, or certified public accountant, is an individual who has passed the Uniform Certified Public Accountant Examination. The exam is given by the American Institute of Certified Public Accountants. Professionals must also meet their state’s requirements in order to be allowed into the ranks of the Institute.

The job of a CPA is to audit and put together the financial reports that CFAs analyze. They are involved with audits, accounting and taxes; specifically, CPAs keep track of the business dealings of the individuals and companies for whom they work. In addition to putting together this documentation, CPAs also file and officially report them. Outside of formal reports, CPAs are able to give advice about how to pay as little taxes and possible and how to profit as much as possible.

In conclusion, these are the differences between CPAs and CFAs. CFAs are involved in the analysis of financial reports, while CPAs create those reports. They are two very different types of professionals involved in finance that commonly get confused. However, knowing the differences can help you make better decisions when you need financial planning help!

Choosing Between a 401(k) and Roth IRA

When it comes to retirement savings, two of the more popular vehicles are the 401(k) and the Roth IRA. Both are tax-advantaged retirement accounts, but there are significant differences. Depending upon your specific situation, you may find that one fits your needs better than the other.

What are the savings limits?

For workers who haven’t yet reached age 50, it’s possible to save as much as $19,000 in a 401(k) as of 2019. Those who have passed 50 can save an additional $6,000 as a catch-up contribution. Depending upon their age, those who want to save in a Roth IRA can save $6,000 or $7,000 per year. Both are great savings vehicles, but those who are looking to max out their savings would most benefit from using a 401(k).

What is the tax treatment?

Most 401(k) plans save money on a pre-tax basis. This means that it’s possible to cut your tax bill in the current year. Savings put toward a Roth IRA are made with after-tax dollars. Both accounts will grow on a tax-free basis as long as the money is left in the account. The difference comes when you decide to withdraw the money. If you wait until age 59 and a half, you’ll pay no taxes on Roth IRA withdrawals. The government treats them as if you’ve already paid the tax due when you made the after-tax contribution. On the other hand, a regular 401(k) withdrawal will be taxed at your marginal tax rate. 

 

An additional benefit of a Roth IRA is the ability to withdraw your contributions at any time. Because you’ve paid the tax on the contributions, there is no tax due. If you withdraw the earnings from a Roth IRA before hitting age 59 and a half, you’ll owe regular income taxes on any growth along with a 10% penalty for early withdrawal.

Is using both a good strategy?

Many future retirees wonder if it’s better to save in a Roth or a 401(k). It’s possible to save in both. Many employers offer a 401(k) match, and oftentimes, this match will be on a dollar-for-dollar basis up to 6% of the employee’s salary. Therefore, it’s a good idea to save at least to the full amount of this match. Any additional money could go toward filling up a Roth IRA to maximize tax-free withdrawals upon retirement. After contributing the maximum to a Roth, contributing to a 401(k) up to the maximum is a great next step. Overall, you could save between $25,000 and $32,000 by maxing out both accounts.