Tax Tips

Soda Tax: A Tale of 7 Cities

For years, obesity has been a problem in America, and that problem continues to grow. According to records, 35% of Americans are obese. The Centers for Disease Control and Prevention even calls the problem of obesity a national epidemic. It is not just a problem about weight; it is a serious problem with health. One of the major reasons for obesity is sugar—sugary food and sugary drinks.

As obesity becomes a national concern, some areas in the United States have chosen to tax sodas or sugary drinks. It is like hitting two birds with one stone: the local government earn from sugary drinks, and people are now more conscious about buying these drinks. This surcharge is called a sugary drink tax or soda tax. The main goal of the tax is to reduce intake of drinks with added sugar among constituents. These include carbonated soft drinks, energy drinks and sports drinks.  

Soda tax, though, is still highly debated. Of course, large softdrink companies Coca-Cola and Pepsi are against such tax imposition. But they are smart and are great marketing players. Why else would they sell sugary drinks that have no sugar? That’s a marketing ploy and a wise strategy that beat this so-called soda tax. These companies are also rich enough to fight imposition of the soda tax so that no state in the United States has actually passed this sugary drink tax. They have started campaign strategies in some states where the sugary tax law was supposed to be tackled and voted on.  


What are the cities in the United States with soda tax?

Since cities and counties have their own sets of laws, six local governments actually have soda taxes paid for by distributors of the sugary drinks. The local governments are the following: 

Albany, California 

The state of California has the most cities with soda tax, Albany being one of them. The tax imposition was approved by voters during the 2016 General Election for a Sugar-Sweetened Beverage General Tax. The tax calculation is one cent per ounce of sugar-sweetened beverage.  

Albany actually has the highest approval rating for the regulation as 71% of voters voted for it. That year 2016 was very important for the sugary drink industry as four cities were voting on the soda tax. Both sides of the soda tax debate spent so much to campaign for or against the tax imposition. It was even known as the most expensive city-level issue voting in the history of America. In a Vox report, it was learned that the anti-soda tax group spent over $36 million in a bid to influence voters against voting for the tax measure. Of this amount, over $30 million was spent by the American Beverage Association, while around $4.7 million was spent by Coca-Cola and another $2.1 million by Pepsi. On the other hand, only close to $12 million was spent by the other side. Former New York City mayor and one of the richest men in America, Michael Bloomberg, spent around $9.1 million in the fight to pass the soda tax in 2016. The Laura and John Arnold Foundation spent $2.5 million for the same fight, while the American Heart Association spent $300,000. Despite the disparity in monetary spending in favor of the side against the passing of the soda tax, the residents of Albany chose to vote for the surcharge anyway.  

Berkeley, California 

The city is the earliest local government to pass a soda tax known as the Sugar-Sweetened Beverage Product Tax in 2014. Products included in the surcharge imposition are sodas, energy drinks and heavily pre-sweetened teas. Also included in the tax are the added caloric sweeteners like syrup that is used in fountain drinks. The same with Albany, the tax was a cent for every ounce of the sugar-sweetened drink. According to a report, the additional tax in Berkeley reduced sugary drink consumption in the area by 20%.  

Oakland, California 

Also passed in November 2016, the Sugar-Sweetened Beverage Distribution Tax or the Oakland Soda Tax was supported by 61% of voters. It provides that every fluid ounce of soda, energy drink, sweetened tea, juice and even sweetened water will be taxed by a cent. The goal of the tax is to promote public health and to fund community development programs. However, in the case of Oakland, the tax goes to the general fund, which can be used for any government programs. However, the city is still required to fund health promotions and community programs even if it is not clear that the funds specifically came from the soda tax.  

The city also formed the Soda Tax Advisory Board, which is tasked at recommending programs that will prevent health problems following the consumption of sugary drinks.  

San Francisco, California 

Also passed during the hype of the soda tax in November 2016 is the Sugary Drinks Tax of San Francisco. But it wasn’t until 2018 that the tax was implemented for transfer sugar-sweetened beverages and syrups or powders. The rate is one cent per fluid ounce of the sugary drink. 

Over 61% of the voters supported the tax, but it wasn’t the first time that this went into referendum. In 2014, majority of the voters supported the soda tax in San Francisco, however, the referendum required two-thirds votes. The tax rate is one cent per fluid ounce of the sugary drink, just like most of the other cities.  

Boulder, Colorado 

The Sugar-Sweetened Beverage Product Distribution Tax in Boulder was passed during that heated year of 2016. The tax imposed in the city for sugar drinks is the most expensive at two cents per ounce of the beverage and those with sweeteners. Tax revenue is used for the promotion of health and general wellness of the population. The tax also aims to prevent chronic diseases caused by sugar or due to obesity.  

Philadelphia, Pennsylvania 

Known as the Philadelphia Beverage Tax or Philly Bev Tax, the law imposes tax on “any form of caloric sugar-based sweetener, including but not limited to sucrose, glucose, and high-fructose corn syrup. Caloric sweeteners also include sugars from concentrated fruit or vegetable juices that are in excess of what would be expected from the same volume of 100% fruit or vegetable juice of the same type.” So these include energy drinks, non-alcoholic cocktail mixes, pre-sweetened coffees and teas, sports drinks and sweetened water. 

Revenue from the soda tax in the city will be used to fund pre-kindergarten and community schools, parks and recreation centers, libraries and other projects that will benefit the public especially those in the lower-income category. The goal is for these programs to aid in the fight against poverty and criminality, which will also result in the improvement of the economy. 

The tax is at 1.5 cent per ounce of sweetened beverage. 

Seattle, Washington 

Also starting in 2018, the Sweetened Beverage Tax in the city of Seattle became a law. The tax was passed by the Seattle City Council with a vote of 7-1. During the first four months of the implementation of the tax regulation, it was reported that Seattle earned $4 million from the soda tax alone.  

In these six cities, the sugary drink tax is collected from the distributors. This means that consumers don’t need to pay additional sales tax to the drink when purchased.  

Other areas tried to follow suit when it comes to passing legislations on the imposition of surcharge on sugary drinks. Cook County, Illinois actually succeeded in passing a similar legislation in November 2016 requiring sugary drink distributors to pay tax of one cent per ounce of sweetened drink. Less than a year later, the tax law was repealed. 

Arizona and Michigan, as a state, preempted the passing of any local government sugary drink tax. California also has a similar preemptive legislation that banned local governments from establishing a new tax for 12 years starting in 2018. The four cities with the soda tax are no longer covered.  


Why only a few cities passed a sugary drink tax 

It seems like a soda tax is very noble: it stops people from consuming more sugary drinks and the tax is usually spent on health or development programs. But it is quite disconcerting that only six local governments actually passed a soda tax. Some say that having a sugary drink tax is regressive because it is the lower-income people who are hit the hardest. While the soda tax is collected from distributors, it is highly likely that distributors will increase their prices in order to accommodate the tax. It’s a business and companies would always pass the tax to consumers no matter how indirect it is. The slight increase in the price of sugary drink may not have a large impact on wealthier individuals, but for people in the lower-income bracket, the effect is quite significant. 

Also, those who lobby against the soda tax will argue that sugary drinks are not the only reason for obesity. They have a point. Unhealthy eating habits coupled with a sedentary lifestyle are major reasons for the obesity problem in America.  

Obesity, though, is a worldwide problem, which is why the soda tax is not something unique to the United States. However, unlike in other countries, the soda tax is actually national legislation. According to reports, Denmark was the first country to legislate the soda tax. Surprisingly, the country did so as early as in the 1930s. Other European countries passed similar laws after 2010: Finland and Hungary in 2011, France in 2012, Mexico in 2013 and United Kingdom in 2016. 

People have treated the soda tax as similar to the tobacco tax. The two have parallelisms with soda tax aimed at reducing obesity and diabetes, and the tobacco tax at cancer. The rationale is that sugary drinks and cigarettes are not necessary for one’s survival, therefore, it is not a grave federal sin if these items are taxed.  

Plausible in the national level 

If other countries are doing it, then the United States can also do it. According to non-profit organization Urban Institute, sugar tax in the national level is feasible. However, it advises doing so by sugar content rather than by volume. It states that the National Government already taxes alcoholic drinks according to its alcohol content.  

“As systems are developed, the formats of early-adopted drink taxes are likely to influence the development of these taxes throughout the United States,” the Urban Institute researchers said. “Local governments should consider their policy goals as they develop these taxes. If policymakers are proposing taxes on sweetened beverages to discourage sugar consumption, they should give close consideration to basing those taxes on sugar content, which is feasible and legal in many jurisdictions. If, however, their primary goal is revenue collection, taxes on drink volume or sales value might be preferred because of their efficiency.” 

The danger of taxing sugary drinks by volume is that it discounts sugar content, which was the essence of the tax in the first place. The goal is to lessen sugar consumption, not liquid consumption. That is also what most countries aside from the United States is doing: taxing sugar content. It is also quite easy to measure as sugar content is required to be placed in the nutritional level.  

Should the government now start taxing all other unhealthy food? 

It would seem like a very hard battle to win if health buffs will now try to target all unhealthy food and force government to enforce new taxes in order to limit the consumption of junk food. But if the soda tax could not gain support from a single state, an unhealthy food tax will unlikely find a champion. Consumption of unhealthy food is directly linked to diseases like obesity, diabetes and hypertension. It’s a good thing that navigating what is unhealthy may be more complex than identifying sugar. This would be a long and unhealthy discussion that would lead to an even more unhealthy discussion when complemented with the tax issue. 

But what this sugary drink tax brings to the table aside from the surcharge is a discussion. People are actually talking about it, which eventually leads to discussion on why the tax came about. The real advantage of the sugary drink tax is that people are actually talking about the ills of sugar in one’s health and that it potentially causes diabetes and obesity. Perhaps, without the need of passing a soda tax, some people will stop or at least reduce sugary drink consumption for health reasons.  

Tax Tips

Start Early: How to Prepare Your 2019 Tax Return

The 2019 tax season for the filing of 2018 tax returns is over, but it is never too early to start thinking or preparing your 2019 tax return. In fact, it may be the best time to start thinking about next year’s tax obligations so that you don’t need to fuss when the 2020 tax season comes.  

According to the Internal Revenue Service (IRS), 103,460,000 American citizens filed their tax returns during the April 15 deadline. The number was down from 103,762,000 tax filers in 2018. About 77,925,000 tax returns were processed for tax refunds this year compared to 79,100,000 last year. The total amount of tax refund processed this year was $220,762,000,000, which is 2.6% lower than the refund last year amounting to $226,558,000,000. The average refund this year was $2,833 compared to last year’s $2,864 average refund.  

This year also marks the first time that taxpayers filed their taxes under the Tax Cuts and Jobs Act, which amended the Internal Revenue Code of 1986. The basic aim of the law is lowering tax rates and adjusting tax brackets so that those who earn a lower income will be taxed lower than in the past years. But personal exemptions have been eliminated. Family tax credits were also increased while itemized deductions were reduced.  

Now that you have an idea what the new tax law entails, you would have a better idea on how to file your 2019 tax returns. This means that you have to employ new strategies on how to lower your tax rate—legally of course.  

How was the Tax Cuts and Jobs Act? 

The verdict on the Tax Cuts and Jobs Act is still out. But people are somehow looking at it on the basis of tax refund. The higher the tax refund, the better it is, so some would surmise. Going by that basis, then surely the tax amendment wasn’t that good considering that the average tax refund was down by around 1.1%. 

But that is not actually a logical basis considering that everything was lower this year: from the number of tax returns filed to the total amount of tax return filed. The difference in the number of tax returns filed could have resulted in also increasing the average tax return. There are many considerations that need to be factored in before one can really say that this amended tax law is better or worse than the original.  

According to a report, only 13 states experienced a lower tax refund this year. The rest of the 37 states experienced a higher tax refund with the Dakotas getting the highest refunds at 6.7% for North Dakota and 6.5% for South Dakota. The District of Columbia experienced a lower tax refund by 6.1%. 

Preparing your 2019 tax return 

Since you already have your 2018 tax return, you might as well dig up your 2017 tax return, which could be handy while you prepare for your 2019 tax documentation. Compare your last two tax returns, particularly the total tax you paid. That will at least give you an idea on how much you should prepare for your 2019 tax.  

Another important information you need to determine is the tax liability. If your latest tax liability went down, it’s not automatically a good thing. Perhaps you didn’t withhold enough for your tax? You have to figure this thing out or there is a possibility that you would owe more in 2019. You might not be eligible for a refund if that happens.  

Are you getting a salary increase this year? Or do you have a side hustle that provides you with extra income? Then you should adjust your withholding tax so that you won’t be surprised next year by the time you fill out your tax return.  

It also helps if you can figure out the huge difference in your tax liability during those two years. Generally, tax liability is lower as the citizens enjoyed the benefit of the Tax Cuts and Jobs Act—that is if you measure it by states. New Jersey experienced the biggest drop with 29.1%, followed by Massachusetts with a drop of 27.6% and California with 27.1%.  However, these reductions in tax liability are not felt by every household because of the different tax implications for each taxpayer. 

A couple without children may be taxed higher than those without children especially if they live in a state without alternative minimum tax but has a high state and local taxes. One of the reasons for this tax imbalance is the cap on state and local income tax deduction at $10,000. This means that citizens with high property and income will pay more taxes because they can’t deduct much of their liability in their federal income tax returns. Those with children pay lower taxes because there are tax credits for parents with minor children. There is a $2,000-per-child tax credit for children under 17 years old. This tax credit is more than double the credit from the previous law.  

Ways to Prepare for 2019 tax return:


Prepare your tax return in advance 

Have a chat with your accountant or bookkeeper and collaborate on a plan to make your 2019 tax due more bearable. If your 2018 tax liability was quite high, then there must be something you can do about it to make your 2019 tax obligation lower. With around 10 months before tax season is here again, you actually have a lot of time to draw up a strategy to make your tax liability better. And if your 2018 tax liability is low enough, surely making it lower is only more beneficial. 

Monitor your withholding tax 

You can adjust your tax withholding every year, which is why you should check how much you are actually withholding from your salary every year. The Tax Cuts and Jobs Act prompted the IRS and the Treasury to adjust the tax withholding tables, which affected income taxes withheld from salaries. This is also a reason why tax refund is generally lower this year.  

As early as January this year, taxpayers have complained over social media how they are getting lower tax refund than in previous years, while some are saying that they now owe the IRS some money. There were deductions that were scrapped under the Tax Cuts and Jobs Act, which should have been a go-signal for a taxpayer to increase their withholding tax. However, as it is still a new law, people were not as attentive to the changes.  

Check out tax-friendly opportunities 

With more than half a year to go before the next tax season, you have a real opportunity to examine tax-friendly initiatives at work. There are a couple of options like your retirement fund or the 4019(k) contribution and health savings account. Both will lower your taxable income. It is actually like hitting two birds with one stone because while your taxable income is lowered, your fund for the future is being sealed, as well as your health savings account—make that hitting three birds with one stone. 

There is also that dependent care flexible account that will help you set aside $5,000 as a means to care for children under the age of 13. The amount will be on a pre-tax basis.  

Be charitable 

The amount you donate to charity will not be taxable, so it is best to plan out your donations to charitable institutions in advance. If you could spread out the donation within a year so it won’t be too heavy, then that would be great. Again, it is like hitting two birds with one stone: you get to reduce your tax due, and you get to help a charitable institution of your choice. Make sure the organization you are trying to help is legitimate, or else what’s the point? 

Ask your accountant about the process of “bunching” in order to save more on your tax due. This is the process wherein a couple or more years of charitable contributions are bunched together in order for you to get a better tax deal. This way, you can itemize deductions every other year and save in bulk every other year.  

Hire a tax preparer over using a tax software

So there are a number of tax software that can help you with your taxes come tax season. The advantage of tax software is that you only have to pay for it once and you can use it for a long time. As opposed to having an accountant as a retainer, this will help you save some money. Of course, during tax season, an accountant is still extremely helpful. But the tax software can be your expert during the 10 months or so of the off-tax season.  

The greatest advantage of having a tax software is that your life will become easier during tax season. Usually, a tax return can be completed within days. But with tax software, the process is cut by a lot. It also helps that since you have the software months before tax season, you can input variables into the system as you get them. For example, when you donate to charity today, you can input the amount in the software and it will become part of the equation during tax season. There will be lesser chances of you forgetting a piece of information that will make a huge difference when it comes to calculating your tax liability. 

Since you have time, it might be a great idea to test out a number of software before actually buying them. Most kinds of software have a free trial so you might as well take advantage of that. The IRS also has its own software called the Free File Software for those whose income is below $66,000 in a year. According to reports, about 70% of the American population is eligible for free filing.

However, hiring a tax preparer is a lot better than using tax software.   Click here to know why…

Know the common tax filing mistakes 

One advantage of preparing your tax return early is the chance to correct mistakes. One way to do that is to learn the most common filing mistakes that citizens commit while preparing their tax return. Here are some of them. 

  1. Wrong Social Security numbers. This number is your identity, you should know it like you know your name. But sometimes, because you are in a hurry or you are so confident that you already memorized the number, you don’t notice that you put in the wrong number or you interchanged a couple of numbers in the series. According to the IRS, this is the most common mistakes committed by tax filers. So double or triple check the Social Security number you put in your tax return. 
  2. Wrong name. This sometimes happens with couples. There is some confusion on what name will appear on the tax return when the couple is either filing separately or jointly. This is why it really helps when you file early. 
  3. Multiple filing statuses. This usually just happens with paper filing, seldom with online filing.  
  4. Forgetting to sign the tax return. 
  5. Calculation errors. This could happen whether we make our own calculations or whether we use an online software to do the math. The thing with the software is that it is still dependent on the numbers that humans input into the system. Once a number is wrong, the entire equation will suffer. Without the software, the taxpayer could make a mistake in both recording and calculation.  
  6. Wrong account number. If you put in the wrong account number in your tax return, chances are your tax refund will be delayed. It is actually very easy to prevent, and with time on your side, this mistake should really be avoided. 
  7. Claiming ineligible dependents. You might write down dependents who have already lost their dependency status. Such mistake could have dire consequences for your tax situation as it may be taken as fraud. 
  8. Failure to file a tax return on time or the failure to ask for an extension to file a tax return.  


Tax Tips

States with Highest and Lowest Property Taxes

When looking for a property, one of the things that one needs to consider is the property tax. Every state has a different set of property tax regulations and you might want to look into that before deciding to buy a home. But having the highest property tax doesn’t always mean a bad thing, just as a cheap property tax doesn’t necessarily mean great for you. A property tax is imposed by the local governments, usually as their main source of income.  

Since it is the main source of revenue for a city or county, most areas with higher property tax almost always have better community benefits like a nice park or better infrastructure like roads and bridges and all other government-initiated projects that will benefit the local citizenry. This is why having a high property tax doesn’t always mean a bad thing for a homeowner as it might just mean better education for children and safety and security. Still, it doesn’t always follow that having a low property tax would mean a chaotic neighborhood and garbage-laden streets. So if you are looking for a property, you have to do your own research about property taxes as well as the community. You should definitely visit the community before committing to such a large financial investment. 

Neighbors could have different property taxes 

This is not a common example but it still happens. A subdivision that lies between two cities would mean different property taxes for families who live across each other. Their houses may be almost uniform but because of a city boundary, their taxes are different. Even more uncanny is that there is a possibility that these families will share public resources because they belong to the same county. So they could have the same park and their children could go to the same school being from the same school district.  

Again, the differences lie in what the two cities have to offer. The city with the higher property tax might have a booming business district. Also, a city zoned as a residential area will have a much lower tax rate. Don’t let property rates fool you though. You might think that an area with a high property rate will have more expensive houses. Nope. That is not always the case. As USA Today pointed out in a comparison between the states of California and Ohio: the property tax rate of the former is in the bottom half of the country, ranking 34th in the list of the lowest property tax rate at 0.81%. On the other hand, Ohio has the 12th highest property tax rate in the country at 1.56%. However, a median house in Ohio could cost $129,900 and the property tax will be around $2,032. In California, for a similar house, the property is valued at $385,500 with a property tax of $3,104. 


But does that mean you would want to live in Ohio than in California? Just because Ohio has a lower property tax rate doesn’t mean that you would choose that over living in California. This is all a matter of preference and practicality. California is the most populous state and for good reason. There are so many opportunities in California. Its economy is the largest in America, and the fifth largest in the world. It is considered a trendsetter in pop culture and films for obvious reason: Hollywood. California is also a leader when it comes to environmental issues, politics, food and culture, and technological innovation—it is where Silicon Valley is located after all. Its economy is also diverse, which is presumably because it is also a melting pot of culture. The state is large and versatile, but that is what all people want. Some want a more peaceful and less densely populated area. 

Ohio’s economic reputation is not bad at all. It consistently ranks high among states with the best business activities. The state is known for being business-friendly, which means that industries prosper and people are at work. That is good for the people trying to settle down, of course, as it could mean that work is abundant. Population growth in Ohio is slow so it is not as populated as other states. Some people would prefer this, hence, may want to live in Ohio more than California.  

Other considerations 

When considering settling down in a place, it’s not just a property tax that you have to consider when it comes to buying real estate or even building a commercial establishment. A city may have lower property taxes than usual but there are also other types of taxes attached to buying a property. According to reports, Bridgeport in Connecticut has the highest property tax rate in the country. However, if you live there, there are no sales taxes included in your shopping items. There are also no income taxes. However, Birmingham in Alabama has a slew of other taxes despite having the 11th lowest property tax in the country. So while the tax on your property will be low, living there will not necessarily be cheaper.  

According to the USA Today report, what is considered as just the right amount of property tax rate for homeowners is 1.2%. On the national average median home cost of $178,600, the property tax would amount to $2,149 for a year. There are 18 states that have higher than the 1.2% rate while the rest of the 32 states have lower rates.  

Top 10 states with the worst property taxes

Here’s the list according to the Lincoln Institute of Land Policy.

New Jersey 

new jersey property taxes

Not only is the Garden State among the more expensive states to live in, but it also has the worst property tax among the country’s 50 states. This has to do with the bustle in this small state. It is the fourth smallest state in America but it is the 11th most populous. Being small and having a large population makes New Jersey the most densely populated state in the country. The median home value is $315,900. That is 43% more than the national average. The property tax rate is pegged at 2.35%, which means that if you own a home in New Jersey that is around $315,900, you are going to pay around $7,410 in property taxes in a year. But this actually makes sense considering that New Jersey is also the second wealthiest US state in the country. Its constituents can afford expensive homes. Nine New Jersey counties are in the top 100 wealthiest counties in America.  

Of course, there is a payoff for that exorbitant property tax. In 2015, the state ranks fourth among states that spent the most on every public school student. This means that New Jersey’s budget for public education is high. New Jersey school systems consistently rank high among the top school systems by state. Over the years, New Jersey high schools also made it to the top 25 best American high schools.  


property taxes illinois

The Land of Lincoln is not far behind New Jersey when it comes to tax rates, however, the median home value is so much lower. While the tax rate is at 2.3%, the median home value in Illinois is just $173,800. That means that the median property tax paid is close to $4,000 a year. Illinois is often referred to as a mini United States. This is because Illinois has almost everything: from industrial cities to agricultural areas, transportation hub, an international airport to bodies of water that link to other states. There are also diverse energy industries, manufacturing and service companies and varied investment opportunities. It is a surprise then that the unemployment rate of the state is at 4.2% when there are so many activities in the area. The area also has among the highest minimum wage in the country.  

New Hampshire 

With a median home value pegged at $237,300, the tax rate of the Granite State is among the highest at 2.15%. But while the property tax is higher than the national rate, the state doesn’t impose a sales tax and personal income is not taxed as well. And while it is the fifth smallest state in terms of land area, it is also the 10th least populous of the 50 American states. It is also a very white state: 93.9% of the population is white.  


Another generally white state also has a high property tax. Connecticut’s white population make up 77.6%. The property tax rate is at 1.97%. The state’s median home value is also more expensive than the national average at $270,500, which means an annual tax of $5,327. When you know the average income of the state’s population, you would also understand why real estate is much more expensive than in other states. According to a report, Connecticut has the highest per-capita income and median household income among all states in the country. But it is also densely population. Even if it is the 29th most populous state, it is also the third smallest state in terms of land area.  


Property tax rate: 1.96% 

Median home value: $165,800 


Property tax rate: 1.9% 

Median home value: $136,000 


Property tax rate: 1.85% 

Median home value: $133,200 


Property tax rate: 1.78% 

Median home value: $122,400 


Property tax rate: 1.74% 

Median home value: $217,500 

Rhode Island 

Property tax rate: 1.63% 

Median home value: $238,000 

Meanwhile, the following states are the


Top 10 Best States for property taxes

These are generally so much lower than the national average of 1.2%. 


hawaii property taxes

This state is very popular among domestic and international tourists, which could be the reason why it is not dependent wholly dependent on its property taxes. The property tax in the state is just 0.27%. However, because it is a tourist destination, most of its lands are considered prime real estate. Median home value is at $515,300. It is the highest among all states. Despite the expensive real estate, median tax amount is only around $1,406 because of the low property tax rate. The general cost of living in Hawaii is very expensive.  


alabama property taxes


When it comes to actual tax amount, Alabama has the cheapest based on recorded median tax payments. The property tax rate is 0.43% but the median home value is way lower than that of Hawaii. The median home value is only $125,500, which means that median tax amount is only $543. Alabama, though, has among the highest poverty rates in the country—the sixth among 50 states. It also follows the federal minimum wage of $7.25 per hour instead of having a state minimum wage, which is higher than the national mandate. So while it is cheap to live in Alabama, opportunities are also scarce. Unemployment rate is even higher than the national average.  


The state is somewhere in the middle when it comes to economy, but its per capita personal income is one of the lowest, ranking 41st out of 50 states. But it is also considered among the most small-business-friendly states in America. It is quite cheap to live in Louisiana with the median home value pegged at just $144,100. The property tax rate is 0.49%, which means median property tax amount is at $707.  


Based on Alabama and Louisiana, it would seem that the lower the property tax rate, the poorer the state. That is not the case with Delaware, which imposes a property tax rate of just 0.54%. The state has among the richest residents in America. According to a study, Delaware is in the top 10 states with the largest number of millionaires based on per capita. This is also the reason why real estate in the state is a bit expensive with the median home value pegged at $231,500. But there is really no reason why property tax rate should be high when the state’s buzzing economic activities: more than 50% of the country’s publicly traded companies are located in Delaware. Also, over 60% of Fortune 500 companies are incorporated in Delaware. This is due to the state’s business-friendly corporation laws.  

Washington DC 

Property tax rate: 0.56% 

Median home value: $475,800 

South Carolina 

Property tax rate: 0.57% 

Median home value: $139,900 

West Virginia 

Property tax rate: 0.58% 

Median home value: $103,800 


Property tax rate: 0.6% 

Median home value: $247,800 


Property tax rate: 0.61% 

Median home value: $194,800 


Property tax rate: 0.62% 

Median home value: $111,400 


Tax Tips

5 Reasons to Hire a Tax Preparer Today More than Before

Businesses are not the only ones that need a tax preparer. An individual can file a tax return by himself if he wishes to. He might think he can save money doing the tax return himself rather than hiring a tax preparer to do so, but this is not always true. S

Why do I need a tax preparer? Why is hiring one more practical for a taxpayer?

These are some of the reasons why you need the help of tax preparers


A tax preparer knows taxes like the back of his hand. He certainly knows it better than you—unless, of course, you are a tax preparer yourself or a certified public accountant. Having a tax preparer is even more important this year than any other year. Why? Because this is the first year that changes under the Tax Cuts and Jobs Act will be implemented. The Tax Cuts and Jobs Act, which was passed in December 2017, amended the Internal Revenue Code of 1986. There are many changes under the new law that could make filing tax returns more complicated for a layperson, especially after filing it under the old tax law for years. 

Some changes under the Tax Cuts and Jobs Act 

  • Tax reduction for individuals and businesses. 
  • Increase in standard deductions and family tax credits. 
  • Elimination of personal exemptions. 
  • Limiting deductions for state and local income taxes. Limiting mortgage interest deductions. 
  • Reduction of alternative minimum tax for individuals. 
  • Eliminating alternative minimum tax for corporations. 
  • Reduction of number of estates that will be considered under the estate tax. 
  • Repealing individual mandate of the Affordable Care Act.  



Hiring a tax preparer could actually save you some money. The cost of one is between $100 and $300. You might think that this would be a bit steep considering that you could do your tax return on your own. First of all, the tax preparer would have to pour over dozens or hundreds of documents and receipts to do your tax return. Secondly, numbers are tricky, so the amount is quite appropriate for a professional with an expertise that is not very common. But why should you pay that much for a tax preparer when you could do it on your own? Because as mentioned above, filing the 2018 tax return is more confusing than ever. But tax preparers know the law and studied the new law meticulously. They could identify tax credits and deductions more easily than a lay person. Because of the tax amendment, there will be deductions and tax credits that will not be obvious to a taxpayer. So there is a big possibility that your $150 tax preparer could actually give you a tax refund worth $500 or more and shave your tax due by more than his professional fee.  

Technical help in the event of an audit 

According to reports, only one percent of taxpayers who have an income of less than $200,000 a year were audited last year. This is quite the same trend over the years. Low- to middle-income earners are not at risk of being audited—at least the probability is not high. However, in case you will be part of the unlucky one percent that gets audited, it would help that you have an expert with you who can handle the audit. If you get audited, that means you will have to face a member of the IRS by yourself. The IRS agent will be armed with the proper tax law knowledge, while you only have your knowledge of your tax return to depend on. Having a tax preparer by your side means somebody could go toe to toe with the IRS when it comes to the provisions of the tax law.  

Avoid errors 

Having an expert doing your tax return means few to zero mistakes. You may have been doing your tax returns by yourself for years but no one is immune to mistakes. That is not to say that experts won’t commit mistakes, but since they have been doing this more frequently than you, then mistakes are expected to be few and none at all—mostly betting on none considering that they are paid to do this. It will not be good for their credibility if mistakes are made in their client’s tax return. Also, some of them use software to double check inputs in the tax return. But you could argue that why not just buy a software to do the tax return? That works, too. In fact, there are online programs that could do the tax return for you. Again, this will go back to expertise. The tax preparer knows best how to use the program or software and he knows best what to input in it. Choosing a computer program over a tax preparer might be more expensive in the end since you have to pay for the system and you won’t get to maximize its benefits anyway as you might just end up needing a tax preparer to organize your data.  


You might have to spend hours going over documents and receipts in order to file your tax return. These hours could have been more productive working—that could earn you money. Or these hours could be spent relaxing—that could give you peace of mind and even save you some future health problems. Taxes are usually causing stress among many Americans. There is always that fear of being audited and not filing the proper tax return. Hiring an expert to deal with all those could be the best thing for your sanity. 

In the end, you have to do what is best for you. If you are confident that you could do this on your own and just want to save the hundred dollars or two that would be spent on a professional, that is really up to you. But the reasons above might just make paying the professional fee worth it.  

Tax Tips

6 IRS Tax Refund Myths

As the Internal Revenue Service (IRS) processes millions of tax returns, the millions of taxpayers also eagerly await their tax refund. Since it’s tax season, tax is the hottest topic around. Unfortunately, just like any popular conversations, not everything you hear will be the truth. So here are some tax refund myths that you are bound to hear. 

Everybody gets a tax refund 

It’s funny that whenever people scramble to file their tax return in order to get a tax refund, other people scramble as well, even if they didn’t actually deserve a tax refund. Many people actually expect a tax refund. The tax refund is basically just a tax rebate when taxpayers pay more than their liability. It is not a benefit from the IRS. It is basically just your own money, some kind of over payment to the government. People obviously want it because it’s kind of a windfall since it is usually a large sum of money. In fact, when you look at it logically, having a refund should not sound as attractive as it usually does because this is money that had gotten stagnant in the hands of the IRS. If you had this kind of money and invested it, then perhaps you would have more in your hands. Instead, the money was with the government and given back to you after a year or so without any interest. But if there is a delay in your tax payment, rest assured that you will be penalized by the IRS and you will also be liable to pay interest.  

So what could be the reason you are not getting a tax refund? First of all, you have to file a tax return in order to get a tax refund. If you filed for an extension to file tax return, then that means the IRS cannot process your actual tax due just yet. As a result, your refund may be delayed—so this is not an absolute negative on the tax refund front. You are also not liable for a tax refund if the amount withheld from your paycheck is just right. Again, note that not getting a tax refund is not exactly a bad thing. In other cases, you might have earned a substantial amount from the Individual Retirement Account (IRA), which has offset your tax refund. The IRA has an investment component, which is why a taxpayer could earn from it. You know that the IRS will tax every earning you have and that IRA extra income will not get immunity.  

Calling the IRS / tax professional will hasten the release of tax refund 

If you think calling the IRS will make your tax refund come any faster, then you’re in for a heartbreak. This is such a load of myth because calling the IRS would only mean being placed on hold for a very long time. The IRS has so many things to do and probably many other taxpayers to entertain on the phone, some probably having the same thoughts as you. The same for the tax professionals, calling them will not make your refund arrive any faster.  

There is a tool, though, where you don’t actually have to irritate any person to know how long before you can have your refund. Keeping up with the times, the IRS has its own app: IRS2Go. There is where you can check your refund status and make payments as well. You only need your Social Security number, filing status and amount of expected refund. If the tax return was filed electronically, then the status of your refund will be available within 24 hours. If you filed via regular mail, the status will not be available until after at least a month.  

There is also a tool on called Where’s My Refund? You can just click the tool and input your personal data in order to check your status.  

Where’s My Refund? Tool doesn’t work—it doesn’t show a deposit date for the refund 

Just because it doesn’t give you what you want doesn’t mean it’s not working. Most people question how Where’s My Refund? works because of varied experiences with other people. Say you checked Where’s My Refund? on the same day a friend of yours or colleague did, it doesn’t mean that your tax refund will be released or arrive at your doorstep on the same day your friend or colleague received theirs. The IRS doesn’t process every tax return the same way. This makes sense since one tax return varies from the other.  

Where’s My Refund? tool is wrong!  

This usually happens when one receives a tax refund that’s smaller than expected. Computation is not always perfect, so the difference in the expected tax refund and the amount actually received could simply be attributed to math mistakes. The discrepancy may also be caused by delinquent federal taxes. Sometimes, the IRS withholds a certain amount unless it has completed a review on an item claimed on the tax return.  

Don’t worry though, the IRS will be sending a letter of explanation on why the actual refund is different from what was expected.  

Acquiring a tax transcript will give you a tax refund date 

So some internet influencers call this a tax refund hack of sorts: ask for a tax transcript from the IRS and, in turn, you will get the date of when to expect a tax refund. This is not true at all. A tax transcript will only indicate past income, tax filing status for mortgage, student loan application and small business loan application. Nowhere in the transcript does it indicate when you will be getting a tax refund. Many have called this a “secret way” but it is never the case.  

I got a refund! There is no need to review withholding tax 

Withholding tax should be checked every year and should be adjusted annually as well if necessary. Just because you got a refund doesn’t mean that your withholding should remain the same. It is always better to be safe than sorry, so make sure you will be deducted the right amount of tax this year.  

Taxes are boring stuff and people don’t always take time to get to know them. But there is power in knowledge. The more you know about taxes, the more you are empowered. This truly helps when dealing with the IRS and taxes in general. The first part of learning about taxes is separating the truth from the myth.  

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IRS Tax Scams: The Dirty Dozen

It’s April and you know what that means: It’s tax season once again. While people are scrambling to file their tax returns on time, scammers are also scrambling to dupe people of their hard-earned money or tax refund. Here are the most common tax scams employed by crooks. 


This is still the most popular tax scam out there because it doesn’t give victims direct contact with the criminals. What scammers usually do is send out legit-looking emails to unsuspecting persons. Actually, the emails are usually sent out randomly. Out of a thousand phishing emails sent, a few are bound to open them—some out of ignorance while others due to genuine concern about the information contained in the email. Usually, this email contains a link that you have to click, and which will then lead you to a bogus website. On that website, you are supposed to give out personal information that the scammers will use to dupe you. Other links are spyware or malware that will allow the scammers to get details from your computer themselves. 

The most important thing you have to remember here is that the Internal Revenue Service (IRS) does not communicate via email. The agency always sends out letters of communication. But people usually fall for these fake emails because they seem real. For one, the subject usually makes it sound urgent, for example: IRS URGENT NOTICE or something similar. The email address also looks genuine: Again, remember that the IRS does not communicate via emails. So when you see an email that seems to be from the IRS, be suspicious right away. Do not open the email—but if you inadvertently open it, do not click on the links. Again, if you inadvertently clicked on the link, do not give out your personal details. You may forward these suspicious emails to  

Phone scams 

Intimidation usually gets people. That’s why phone scams, according to the IRS, have increased in recent years. This is because most of the scammers employ intimidation when they call people. The scammers usually call unsuspecting individuals and claim that they are from the IRS. To make it sound believable, the scammer would mention a badge number or some sort of identification number to prove that he works in the agency—unfortunately, there is no way for you to verify if what he is saying is true since you are on the phone. The scammer would then claim that you owe some money to the IRS. The threat would then follow: the scammer would claim that you would go to jail if you don’t pay your tax. If somehow the scammer realizes that you are an immigrant, he would then claim that you could be deported if you don’t pay your tax. When this happens, the best thing you could do is to say that you will refer this matter to a lawyer. If the caller insists—as he most definitely will—continue also to insist that you would rather speak to a lawyer first. You may also threaten right back at the caller and say that you know someone from the IRS and would rather speak to them than some stranger who claims to be from the IRS.  

Identity theft 

This is the most popular credit card scam out there. But it is also used for tax scams. Sometimes, this go hand-in-hand with the phishing and phone scams. So once you have given up personal information through the fake email or phone call, the scammer will then use your name, Social Security number and other personal information to file a tax return in a bid to get a tax refund. This is why you should never give up personal details that easily.  

Over the years, the IRS has improved its ability to detect tax returns made by identity thieves. But the agency cannot always get everything, especially since criminals have also upped their game. As the IRS states: “Protect personal data. Don’t routinely carry a Social Security card, and make sure tax records are secure. Treat personal information like cash; don’t leave it lying around.” 

Fraudulent charities 

Most people want to help, and donating to charities seems like a good way to hit two birds with one stone: you get to help others and you lower your taxable income. If you really want to donate to charities, do so with organizations that already have a good reputation. But these are already big organizations, so if you want to help the smaller ones because they need it more, just make sure that you did your due diligence in researching the organization. Make sure it is legitimate and it really helps the marginalized sector. Also, be suspicious when charitable organizations ask for your personal details when you donate. The donation and receipt of donation should be as far as the exchange will go.  

Unscrupulous tax return preparer 

People are always busy making a living, and tax returns are not as easy as filling out a personal data sheet. Preparing a tax return can sometimes drain the life out of you and it would take days to complete as you have to go through receipts and documents. This is why around six taxpayers out of 10 rely on professional tax preparers to help them with their tax return. This is well and good as they also know better what to do. But how well do you know your tax preparer? There will always be some bad eggs in a whole tray. So make sure you know your tax preparer well. If you still don’t have one, ask a good friend to refer you to a good one. Or if you find a tax preparer, check out his credentials and research his reputation. One proof that your tax preparer is doing his job properly is if he signs the tax return he helped prepare. Employ only those who will affix their signature as well as their IRS Preparer Tax Identification Numbers. 

 Bloated refund claims 

One thing that unscrupulous tax preparers do is inflate your tax refund claims through tax credits like the Earned Income Tax Credit and the Additional Child Tax Credit. These credits allow a taxpayer a bigger tax refund. So be careful with tax preparers who receive a fee based on percentage of the tax refund, they most definitely will inflate your claims to also bloat their fees. If you get caught, there will be potential jail time for you as well as penalty—then your tax refund won’t matter anymore.  

Faking income to claim credit 

Again, this is something that an unscrupulous tax preparer would do. Actually, this is also something a taxpayer can do himself. This is the process of bloating an income since only taxpayers with earned income can qualify for a refundable tax credit. Don’t even take the risk because doing so will mean a much-bigger financial burden if caught by the IRS. If caught, you would have to pay back the refund you received along with interest and penalties. It is also worth noting that falsifying your income is a crime so there might be legal repercussions along with the fine. 

Padding tax return deductions 

Every taxpayer is authorized to claim deductions—and there are a number of them. Of course, there are requirements and limitations for the deductions that you have to abide by. But of course, taxpayers want more so they could be tempted to overstate deductions. Either that or the tax preparer does the padding to claim more deductions. Again, the financial consequence of such act could be more than the refund you have claimed. First of all, you would have to pay back the IRS the excess refund given to you along with penalties and interest. And then, you might have to face legal charges as well.  

Inflated claims for business credits 

Just like the other padding schemes, the IRS has ways in finding out if you have bloated your business credits by reporting some bogus ones. Every entity is entitled to business credits, but report only what is due to the business or the repercussions will be dire. The few credits you will earn will not be worth the penalty as well as the shame.

Offshore tax avoidance 

Make sure you report foreign investments because not doing so is illegal. There will be civil and criminal repercussions for foreign accounts and investments that are not reported to the IRS. It is a form of tax evasion since these investments are taxable. Not reporting them means you are evading the tax responsibility.  

Silly tax arguments 

Have you heard of the man who refused to pay taxes just because he thinks his tax money is being used to fund abortion in the US? Well, don’t try to follow in his footsteps because while the First Amendment demands that your beliefs should be respected, the law also states that it is every citizen’s responsibility to pay tax as it is the lifeblood of the government. 

Do not abuse tax shelters 

Just pay the appropriate amount of tax and you will not be in any trouble. There is no such thing as permanently avoiding taxation. So if anyone offers you that through tax shelters, just say no.  

Know that these scams, which the IRS dubs as the “Dirty Dozen,” can hit you anytime of the year. So don’t just be wary of them during tax season. These scams, though, peak during tax season, which is why the IRS often issues warnings ahead of the tax season. The most important shield against scams is information. If you are knowledgeable about how these scams work, then chances are you will not be duped.  

Tax Tips

Advantages of Saving Your Tax Refund

One of the things taxpayers look forward to every year is the tax refund. Not that all taxpayers really get them, but one could only hope. That’s like windfall—money that you did not take into account (unless you are that fastidious about your earnings). The average individual would spend tax refund like money they didn’t earn. That’s how you are supposed to deal with a windfall. But here’s a thought: why don’t you save your tax refund? Here are advantages to saving your tax refund: 

You get to start or increase your emergency fund 

Americans are too dependent on credit cards. But every time you swipe your card, it’s a debt you have to pay. It entails finance charges and debt interest when you don’t pay for the amount by the time the credit card company bills you. So when an emergency comes, you swipe your card and your credit card debt balloons. Save your tax refund. Imagine if you get a refund of $2,000 this year, and almost the same amount next year—that’s $4,000 of “easy money.” Take note of the quotation marks because essentially, you did slave for that money, it just didn’t feel that way because that money was unexpected brought about by your over payment of taxes. You also have to take into account that the money you saved will earn interest. Over the years, as long as there is no emergency, that money will balloon along with interest. You might just wake up one day realizing that you can already afford a car, or make a down payment for a house, with your tax refund over the years.  

You may even get an incentive 

There is a movement to save your tax refund via A collaboration between Commonwealth and America Saves, this movement aims to teach Americans to save their tax refund—a part of it at least—by giving an incentive when they save. The website teaches you to split your tax refund in two parts—one for spending and the other for saving. When you save your refund, you will be eligible to win money from the companies behind the website. The website was started because in a survey, it was learned that 62 percent of Americans experience at least one financial crisis within a year. More than half of them don’t have emergency savings.  

“Commonwealth and America Saves are offering SaveYourRefund as a simple, innovative, and fund program focused on a crucial and universal but often stressful moment in people’s lives—filing taxes,” the website stated.  

You may pay your debts 

According to a report, the average American is about $38,000 in debt in 2018. The figure is up by $1,000 from the previous year. Most Americans have credit cards, student loans, car loans and mortgages, so this is understandable. So when you do get a tax refund, rather than spending it on trivial things like people usually do with unexpected money, pay your debt! 

What Americans don’t usually take into consideration are the interest rates and finance charges on credit cards. This plastic money has become a big part of the lives of Americans that they don’t scrutinize credit card bills anymore. Credit card is a business, so of course the companies need to earn from it. Imagine if you don’t have to pay 10 to 15 percent in interest charges—that’s already savings on your part. So saving your tax refund to pay off credit card debt is actually more savings for you as you save on having to pay those interest rates. The same goes for every other debt you have. The longer you pay off a debt, the longer you have to pay interest rates.  

You can start an investment—trade or stocks 

If you don’t have that much of a problem with debts, then it’s time to take the next step in financial maturity: investing. Your tax refund will seem like a lot considering that you get it one-shot, but imagine how much it will turn out when invested. It doesn’t even take that much to invest. For online stock broker, for example, you can already start trading for as low as $10. Investing in stocks via phone may cost around $35, and $45 when you get a broker to assist you. Just make sure you research about where to invest in order to protect your money. Having a personal broker would help you very much but if you are not going to invest a large amount of money, having one may be a tad expensive. After all, these brokers earn about 4.5 percent of your investment as commission. For online trades, the fee is just minimal—around one percent.  

You may invest in your future 

If you are employed, then you most probably have a 401K through your employer. But you can still open your own IRA or individual retirement account. This is a great investment because it is for your future. The 401K will not be enough to live on for the future if you want to live a life of travels and fun activities. The 401K may just be enough to fund your maintenance medications. So make sure you will enjoy your retirement but investing in it now. 

You can invest in yourself 

Is there a course you’ve always wanted to take but thought that it’s too expensive? Perhaps there is a self-improvement seminar that you really wish to attend but thought that the expense is unnecessary. If you think any of these will expand your character growth, then by all means, invest in yourself. Advancing yourself is the best form of investment that your tax refund could make.  

You can start a business 

You may put aside your tax refund for a possible business venture in the future. Most Americans don’t want to take the plunge of starting a business because of the capital investment. So spend your tax refund wisely by building a future. A business is wise investment if you studied it well enough. Having a business means no longer depending on paychecks, but it also means that you have to take a risk about earnings because a business is a win or lose kind of thing. However, there are endless limits to starting a business. Who knows, you might start the next Facebook revolution? Or you can start small; you can still start a business while still enjoying the perks of employment.  

What you have to remember is that the most important thing is you save your tax refund for something worthwhile rather than things that will only get you through the night or some nights. Save your tax refund and spend it on something solid that you can live on in the future.  

Tax Tips

How Long Should You Keep Tax Records?

It is very helpful when you keep your tax records. This, especially when you are self-employed, or are employed but working with a side hustle. Your tax records will give you an idea of your finances over the past few years, whether you are employed or not. They are also very helpful when questions of your finances arise. And they are of utmost importance if the Internal Revenue Services (IRS) comes knocking and decides to audit you. Yes, these records are very helpful, but they can also be fire hazards. Keeping so many papers at home will be dangerous since these light up pretty easily in case of fire emergencies. Not only that, papers are messy. They can easily clutter the house.

So you have to get rid of these papers somehow. But how long should you keep tax records?

There are two sides to this issue. There is a train of thought rendered on the statute of limitations, and another that believes in eternity.

Statute of limitations

First, let’s ponder on a set of people who just want to get rid of clutter. If you have to be practical about it, you might not need a specific tax return when it is already 10 years old. A tax audit won’t ever get that far back. In fact, as far as tax audit goes, the chance of being audit is slim—granting that there are no discrepancies in your tax return. The IRS only really looks at people with large tax dues or those whose tax return largely differ from his tax due in the previous years. In other words, the IRS would love to examine closely those tax returns that seem a little out of the ordinary. For regular taxpayers, the odds of being audited are just one in 25 people. The IRS does that randomly too. However, it is still best to be prepared.

A tax audit is really just the best reason why you have to keep tax records for longer than necessary. For other reasons, there are statutes of limitations, which you can use as the rule of thumb when deciding when to lose tax records. Even the IRS assures: “The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations of that tax return runs out.”

Here are some periods of limitations for tax records as enumerated by the IRS:

  1. You should keep tax records for at least three years from the date you filed your original tax return or two years from the date you paid your tax if you aim to file a claim for credit or refund after filing the return.
  2. But keep records for at least seven years if you intend to file a claim for a loss from worthless securities or bad debt deduction. Sometimes, you don’t realize that you need to file such claim or that you can—so you might not have this intention when you filed your tax return. So in order to be in the safe side, you might as well keep tax records for at least seven years.
  3. If you don’t report income that you should report and it’s more than a quarter for the gross income reflected in your return, then you should at least keep records for six years.
  4. But if you have never ever filed for a tax return, then you should keep records indefinitely.
  5. Employment tax records are advised to be kept for at least four years.

Basically, the IRS is saying that you should not dispose of your tax return and other tax records in the next seven years. But if you are not thinking of making claims and other uses for the records, then you can keep them for at least three years. That is the general rule of thumb for tax audits: three years. But you have to consider that while it may be the general rule, it is not a national mandate. The period of limitations may differ from one state to the other.

While the IRS generally do not audit people for tax returns filed over three years ago, some states assess additional tax obligations four years after the filing of the tax return or the due date, whichever is later. Among the states that use the four-year rule of thumb are Arizona, California, Colorado, Kentucky, Michigan, Ohio and Wisconsin. In Tennessee, you might have to keep your tax records for at least five years. This is because the state could still make an audit three years after you have filed your tax return or its due date; but this could turn into three and a half years if you want to claim a refund; five years if the IRS changes your federal return. Still, in Louisiana and New Mexico, the standard is three years but the counting starts on Dec. 31 in the year your tax was due. In Kansas, the statute of limitations is three years after the date of the filing of the original return or the date when the return is due or when tax was paid. Taxes may also be assessed within 12 months after an amended return is filed. Minnesota’s statute of limitations is three and a half years after the date of filing of the return or the due date of the return, whichever is later. For the same provision, the length is five years in Montana, and three years in Oregon. All in all, it may be safe to just keep tax records for at least seven years—no state has a statute of limitations that go beyond seven years anyway.

Notice that we usually mention tax records rather than just the more specific tax return—this is because you should store and keep every piece of document that would relate to your tax and tax return. Here are among the records that you should keep along with your tax return:

  1. Income forms: W-2, 1099, K-1, among others (The W-4 is not included in this because this is something you should update regularly—at least every year).
  2. Investment records including 1099
  3. Property tax and mortgage interest (1098)
  4. Expense records
  5. Donation receipts
  6. Retirement account documentations: 1099-R, 5498, 8606

The side of caution: Forever

There are people, though, who are more cautious than others. Whether you belong to this group or not, it may be more prudent to listen to the arguments of the other side anyway, the side that tells you to keep tax records indefinitely. While there are statute of limitations on tax records, and even the IRS itself has given recommendations on how long to keep records, all these maximum number of years will go out the window when fraud comes into play. The IRS will order a tax audit even if the tax in question date as far back as 15 years ago if the agency believes there was fraud involved—that and if you have never filed a tax return before. Notice the string of words: if the agency believes there was fraud involved. It doesn’t have to mean that you were actually involved in fraudulent activities, but if the IRS thinks so, then an audit will take place whether you still have records from a decade ago or not. This is why some tax experts advise to keep tax returns and other pertinent tax records in perpetuity. Just in case it happens to you.

But they are fire hazards, aren’t they? Yes, we have already established that keeping loads of paper is dangerous—good thing this is not the Stone Age. Save it in the cloud! Digitize your records and save them in cloud storage like Google Drive, which is free. You may also pay a monthly storage fee for an iCloud storage for very minimal payment. Make a folder that you could update every year. By doing this, you have erased the problem of keeping fire hazard materials at home and you will be decreasing clutter at home. Also, there will be no danger of losing these documents or having them inadvertently destroyed by fire or by virtue natural disaster. No one could steal them, too.

The great thing about saving them in the cloud is that you could actually check on the records anytime you want.

Since we are on the issue of the cloud, don’t just limit cloud storage to tax documents. Keep all kinds of documents in the cloud—titles from house, insurance documents, court papers, property records and everything of utmost importance. Consider the cloud your own steel cabinet where you can keep similar files in one folder. You may even label them, too. That’s the most important thing—labels. Just because it’s up there in the cloud doesn’t mean that records could not be messy. The organizing part still falls on your shoulder even with the digital age. But the best thing about technology is that everything is just easier and the documents are way more accessible.

Tax Tips

How to File for Tax Extension

Nobody enjoys paying taxes—but it is essential that we do. However, there is something even less enjoyable than paying taxes—paying penalty! So always file your tax return on time as well as pay your tax on time. If you are not prepared to file your tax return, then you must file for an extension to file a tax return.  

It is actually better to file for an extension to file tax return rather than haphazardly file it. The danger here is that you may not be able to maximize tax benefits and credits under the tax law. You actually need time in order to correctly fill out your tax return. You also need the pertinent information and knowledge about your taxes and the tax relief that are due you. In fact, if you can hire assistance, that would be best—they know best about these things.  

In other cases, you may be unable to timely file tax return because you are still waiting for a document that will help you get a tax benefit or credit. If you really need this document in order to be able to enjoy your right to a tax relief, then you file for an extension to file a tax return. There is no penalty to filing for an extension, but there is a penalty if you are unable to file a tax return.  

However, there is one thing that you need to remember: while the Internal Revenue Service (IRS) is open to giving taxpayers extension to file their tax returns, it is not exactly open to given taxpayers extension to file their tax. In other words, you may file your tax return at a later date, but you cannot be late in paying your tax! 

You may ask: But how do I know how much I owe the IRS if I have not done my tax return? Well, you have to estimate how much you owe the government. It is better to make a large estimation than a small one. Anyway, that’s why the IRS also does tax refunds—although, you won’t be getting that refund anytime soon. Another option is to enter into an installment agreement with the IRS so that you don’t have to pay a large chunk of the tax. Although, this is not going to be easy peasy, as you have to prove to the IRS that you cannot afford to pay the total amount of your tax due. Another option is to pay at least 90 percent of your estimated tax due to avoid getting interest charges and being billed for penalty. The interest and penalty will really hurt because there are things that you shouldn’t be paying anyway if you were just being meticulous about your taxes. By the way, you can pay your tax in a quarterly basis so it won’t be too heavy financially. 

In case you are not privy to the tax details, the deadline of the filing of tax returns is April 15. That is also the deadline to file for extension to file tax return. Typically the IRS gives an extension of six months starting April 15 for taxpayers to file their tax returns if they were able to timely submit the extension request.  

There are a few U.S. groups, though, who get automatic tax exemptions despite not filing for them. If you are any of the following, then you don’t need to file for an extension:  

  • Military men deployed in combat zones. Obviously, they deserve this kind of special treatment. They are allowed to pay their tax dues 180 days after leaving a battle zone. 
  • American citizens outside the country. But the deadline is not much. They have until June 15 to file their tax returns. So if you have plans of going on a trip outside the country, you should think of some arrangement for your tax return or tax payment especially if you will be out of the country between April 15 and June 15. Besides, the IRS would not mind early payments or early filing of tax return.  

  • People who were unfortunate enough to be affected by a natural disaster. But since this is something that nobody foresees, it is the IRS that sets a deadline. 

Now that you have all those details, what do you need in order to file for an extension to file a tax return? IRS Form 4868. This is the official document that you will need. If you believe that you don’t actually owe money to the IRS because you merit a tax refund, you could just Free File your tax return along with Form 4868. This is for free and is available via the government website: This is tax-preparation-and-filing software, so basically, you will be e-filing your tax return. But if you have any tax due, then you pay for it along with your Form 4868. You can still e-file your tax return, but you can no longer use the Free File. You may also pay your tax due online. There are three ways to do this: credit or debit card, the IRS Direct Pay and the Electronic Federal Tax Payment System. When you pay online, make sure you indicate that it is for Form 4868. Don’t worry, it will appear during processing, you just need to click it. You may also file your tax return through regular mail, along with your check.  

So, what happens if you don’t pay your tax on time or file your tax return on time?

We already established that there will be a penalty—but how bad is it? There will be an interest charge for non-payment of tax, which compounds daily. The rate of the interest will be determined every quarter, usually at a federal short-term rate, plus three percent. A late tax payment will also be billed a penalty fee, which is half of one percent of the tax due. It is charged monthly until such due is paid off. There is a separate penalty charge for the late filing of tax returns, including the extended ones. The penalty is five percent of your tax due every month that the return has not been filed. But the maximum penalty stops at 25 percent. For returns that are 60 days late, there is a minimum penalty of $135 or the balance of the tax due on the return—whichever is smaller.  

Business Taxes Tax Tips

Tips for Investors to Minimize Taxes

It’s that time of the year again when U.S. citizens have to file their tax returns and pay their taxes. For the first time, taxpayers will also contend with changes in the law through the Tax Cuts and Jobs Act of 2017. Since the law, which amended the Internal Revenue Code of 1986, was passed in the late 2017, its effects and implications will be for the 2018 tax year, which will be filed this year.  

When tax season comes, taxpayers scramble to get the most benefit from the tax refunds and tax credit provisions under the law. For individuals, the tax is pretty much cut and dry. It becomes more complicated with the individual have other entanglements like marriage, children and a business. Everybody wants to pay less. But with investors, there is always that mindset of wanting to spend as little money as possible while earning a lot. There are many strategies that could keep investor taxes at a minimum—legal strategies at that. Don’t even try doing an illegal maneuver or you will end up paying more than you should if caught. Or worse, you may even end up in jail.  

If you are an investor and you want to keep tax at the barest minimum, you will want to get acquainted with the tax-loss harvesting strategy. This will also help you have increased long-term returns. Businessmen usually resort to this approach to taxes when their investments become less than the purchase price. But this strategy is a complicated matter because it has to be countered with other tax rules. 

Here are some things you need to consider when figuring out how to minimize tax due: 

Offset your capital gains 

Based on the tax-loss harvesting strategy, a long-term capital loss could be used to cancel out a long-term capital gain. A long-term investment is assets including bonds, stocks, real estate and cash that a person holds or owns for more than a year. On the other hand, a short-term loss will be considered to offset a short-term capital gain. Those that will be considered as short-term investments are assets owned for less than a year. Excess loss from either short-term or long-term investment could be canceled out by either of the capital gains. Every year, there is about $3,000 in losses that could be applied to a person’s ordinary income. If there is an excess of loss from that, it could be rolled over in the next few years.  

Better tax results from tax-loss selling 

When an investment outperforms a particular index or the overall market, an alpha is created. Additional alpha could be conceived during tax-loss harvesting when a businessman is expected to have better tax results. One may be able to sell stocks or funds via losses. This will offset profitable sales from an earlier period.  

Wash-sale rule 

When an investor sells or trades a security for a loss but then buys a similar stock or security within a month after the sale, a wash-sale occurs. Basically, the purchase washes out the sale that the person was forced to make. Take note of the use of the word “similar” because the Internal Revenue Service (IRS) frowns upon investors selling a security and buying an identical security within a month of the sale. In fact, frowns may be the wrong word as the IRS actually imposes a penalty on that. This is a means to prevent anyone from just making up losses in order to enjoy some tax benefits.  

How tax-loss harvesting could minimize tax due 

Businessmen don’t really need capital gains in order to take advantage of the tax-loss harvesting approach. As earlier mentioned, there is that rule that allows the offsetting of $3,000 in losses from ordinary income. Using that same amount, say an investor sells stock but via losses. That loss could then be utilized for the reduction of taxable income by $3,000. So let’s say a businessman loses a security but sells an asset to cover for the loss. He will then reduce taxable income worth $3,000 for the year and will then let additional losses roll over for the next few years.  

On the other hand, this may also help create greater returns for the taxpayer. So if the businessman saves some amount in taxes every year by using the tax-loss harvesting scheme, he could use those savings and invest them in other forms of assets like in the stock market. Every year, the amount will see interest and would then increase to a hefty sum. In 25 years, your few hundred dollars of savings could already make tens of thousands of dollars.  

There is a caveat though. Earning a hefty sum from tax-loss harvesting would only work for a certain range of income. Experts say tax-loss harvesting is not appropriate for an individual with less than $40,000 in taxable income as well as in a married couple with a joint taxable income of less than $80,000. Records indicate that for individuals making just around $38,600 a year and $77,200 for spouses filing jointly, the capital gains rate is zero.  

Another thing, tax-loss harvesting is not applicable to the 401 (k) or the individual retirement account or other retirement accounts because losses from these accounts cannot be deducted.  

Analyse first before selling stocks 

There is a danger when an investor is only looking at the immediate solution and singling out the tax-loss harvesting strategy as an easy way out. There is a tendency that you sell a stock but within the month, the security rebounds. So always give yourself time to analyze stocks and funds and other related assets. Keep up with earnings calendar or the official public announcement of a company’s profitability over a time period. Never sell around earnings releases because profit reports from every company will immensely affect prices of assets. Give yourself time to analyze the market after earnings releases. Discuss your intention to sell with an expert over coffee. Some experts will definitely welcome the discussion without you wondering if you have to pay for that expert opinion.  

Municipal bonds 

This is one way to hide your money from tax in a very legal way. Very is put there for emphasis because a municipal bond is a debt obligation issued by a government. You basically put in money for the government to roll. Basically, you are allowing the government to loan some money from you. In return, your bond will earn interest. But the best part is, the amount you put in will not be taxed. There are also taxable bonds but why make that option when there are bonds that are not tied with federal, state and local taxes? But it also begs the question: Why is there an option for a taxable bond? Because the income from that type of bond is generally higher.  

There are two types of municipal bonds: general obligation bonds or GOs and revenue bonds. The former is issued in order for government to have money to cover regular operational expenses. The latter is issued in order to fund infrastructure projects. Low-risk investors enjoy these kinds of investments because they will definitely earn from it—after all, nothing can bankrupt the government. It is also another way to minimize tax bill.  

Health Savings Account 

This is another way to have reduced taxes. Since this is for your health, the government is not inclined to pose taxes on any contributions to the Health Savings Account. If you put in the maximum amount possible, the account will grow and you don’t have to worry about tax. Of course, there may be a time that you will need the fund, say an emergency medical expense or even a scheduled medical procedure, withdrawals from such account will not be taxed as well.  

Get an expert opinion 

When you go through the IRS website, you will realize that there are so many tax credits that you could take advantage of that will help you reduce your taxes. Who knows better about these tax credits and forms of tax relief than tax experts like a certified public accountant, tax lawyer or an enrolled agent. Hire an expert to help you get maximum tax credit in order to minimize tax due. You should not worry about the professional fee because for sure, it would be offset—yes, that word is repeated over and over because that’s an important word when talking about minimizing tax—by the possible savings you will get in the end.  

Taxes are never easy—paying them and calculating them. During tax season, many people are left scratching their heads over the simplest tax matters as filling out the forms. But the most headache-inducing part of tax season is the actual paying of taxes. Because it is usually a one-time thing—unless of course you apply for some sort of tax relief—it is a heavy burden. Other countries deduct taxes from an person’s regular income, making it less burdensome for the taxpayer both financially and mentally. But since that is not Uncle Sam’s way, taxpayers have to endure every year in what is known as tax season. It is an obligation that every American must settle if people want to continue enjoying the perks of living in the Land of Opportunity. 

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