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Yahoo
16-05-2025
- Business
- Yahoo
George Kamel: 6 Reasons You Paid More Taxes This Year (and What You Can Do About It)
During tax season, you probably expect to owe nothing extra or even receive a nice refund that helps you catch up financially. But if you were unlucky when you filed your 2024 tax return, you might have gotten a surprise IRS tax bill that left you wondering what happened. Read Next: Explore More: In a recent YouTube video, George Kamel discussed six reasons you might have owed more taxes this year. He also spoke with tax lawyer Jasmine DiLucci about ways to avoid shortages next time. A bigger tax bill often comes from changes to your income. A raise or promotion may have led to a higher tax rate. Or you might have joined the roughly 8.9 million Americans who worked multiple jobs, as reported by the U.S. Bureau of Labor Statistics. These situations can lead to your employer not taking enough taxes out of your pay. Both Kamel and DiLucci recommended going to your employee portal or asking HR about updating your Form W-4, which asks questions about your tax situation and lets you adjust how much money is withheld. You can also use the IRS tax withholding estimator to figure out the right amount. When you update your Form W-4, keep in mind that Kamel advised aiming to have a tax balance of zero. While they're a nice surprise, refunds aren't necessarily a good thing for your money. 'If you're getting a refund, it's because you've been overpaying and essentially loaning your money to the government interest-free,' he said. Be Aware: Losing tax breaks or qualifying for lower amounts can cut into your refund or leave you owing money. Kamel gave the example of Child Tax Credit, which was $3,600 for children under 5 in 2021 compared with $2,000 in 2024. Other scenarios include losing education credits if you completed school, getting a smaller Earned Income Tax Credit because your income went up or not qualifying for the Saver's Credit if you didn't contribute to your retirement account. While you can't do much about some lost or reduced tax perks, Kamel and DiLucci discussed how deciding between an itemized and standard deduction is important for saving money. DiLucci said the standard deduction is usually better unless you've got high mortgage interest and/or high charitable deductions. 'If you got married or divorced, both of those things can change your filing status and your taxable income, and if you sold your home, you may owe taxes depending on how long you lived in the house, your profit from the sale and your filing status,' Kamel said. If you stop qualifying for the married filing jointly status, your standard deduction is smaller, and you could find yourself in a higher tax bracket. But if you have a qualifying child, check if you can file as head of household since this is more favorable than filing single. Before future property sales, check the IRS rules on capital gains taxes. Meeting certain requirements can exempt up to $500,000 of your house's profit from those taxes. DiLucci said some people aren't aware that there's a $400 threshold for self-employment taxes or that this type of income is reportable. Since it's your job to pay taxes on self-employment earnings, a big tax bill is possible if you don't follow the rules. 'To avoid any potential penalties and fees, it's best to just pay it quarterly through the IRS website,' Kamel said. Even if it's just a small side hustle, track all your earnings and expenses and use Form 1040-ES to figure out what to pay the IRS each quarter. According to Kamel, taking money out of a traditional retirement account could also cause a larger tax bill. 'This would be now taxed as income,' he said. And if you have a regular brokerage account, taxes on gains might have increased your 2024 tax bill. The impact can be bigger if those investments were less than a year old; normal income tax rates rather than lower long-term capital gains rates would apply. It's smart to speak to a tax expert or investment advisor who can help you time withdrawals and sales and find other ways to lower your investment taxes. Tax mistakes do legitimately happen. Maybe you typed the wrong income amount or forgot an eligible tax credit or deduction. DiLucci also mentioned that transactions on platforms like Venmo can lead to a 1099-K issuance and an unexpected tax bills if the money is assumed to be income. DiLucci explained that if it's not income, you'll need to disclose that. 'You actually need to typically report it on your return, reverse it out and disclose that it's not income. Otherwise, the IRS will put it on your return as income,' she said. Looking into tax rules, double-checking everything and working with a tax professional can help you avoid costly troubles. More From GOBankingRates What $1 Million in Retirement Savings Looks Like in Monthly Spending Mark Cuban Tells Americans To Stock Up on Consumables as Trump's Tariffs Hit -- Here's What To Buy 5 Little-Known Ways to Make Summer Travel More Affordable 5 Types of Vehicles Retirees Should Stay Away From Buying Sources George Kamel, 'Why You Paid More Taxes This Year (And What To Do About It)' U.S. Bureau of Labor Statistics, 'The Employment Situation — April 2025.' This article originally appeared on George Kamel: 6 Reasons You Paid More Taxes This Year (and What You Can Do About It) Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
07-03-2025
- Business
- Yahoo
Americans Pay $500K in Taxes Over Their Lifetimes — 9 Ways To Cut the Cost Down
The average American pays more than half a million dollars ($524,625) over the course of their lifetime in taxes, according to a study by Self Inc. That comes to 34.7% of their total lifetime earnings. Find Out: Be Aware: If you would prefer to hand over less of your money to Uncle Sam, now is a good time to consider several strategies that could help slash your tax burden. Too many households across the income spectrum don't realize they qualify for tax credits. Some tax credits are refundable — even if you don't owe taxes, the government actually pays you money. Lower- and middle-income taxpayers can take advantage of the Earned Income Tax Credit, the Saver's Credit, Child Tax Credit, the Child and Dependent Care Credit and the Lifetime Learning Credit. Even higher-income households can find tax credits, although it requires more strategy. 'Tax credits like research and development credits or energy-efficient investment credits can help you to offset tax liability through specialized investments,' noted Mark Eid, Managing Director of Acts Financial Advisors. American Opportunity Tax Credit: You can deduct contributions to traditional retirement accounts such as IRAs and 401(k)s. Mark Luscombe, Principal Analyst at Wolters Kluwer Tax & Accounting, pointed out that many workers' income fluctuates from year to year. 'Contribute the maximum amount to qualified retirement plans during higher-earning years,' he advised. You can also contribute to a health savings account tax-free to slash your tax bill even further. As great as that one-time tax deduction is, tax-free compounding and withdrawals offer even better benefits. 'Tax rates will likely rise over the long term, given the mounting US budget deficit,' observed Thomas Brock, financial consultant and expert contributor for He recommended taking the tax hit now to avoid paying higher tax rates on a higher compounded sum in the future. John Vandergriff, owner of Blue Ridge Wealth Planners, urged investors to go even further and convert their traditional retirement funds to Roth accounts. 'Taxes are lower than they have been in decades,' he noted. 'Especially in lower-income years, move money from traditional accounts to Roth accounts.' In fact, you can contribute money to a Roth account even if your income exceeds the limit. 'The 'backdoor Roth strategy' involves contributing to a traditional IRA or 401(k) even if your income exceeds the limit,' explained financial advisor Ty Powell. You can't deduct the contribution — but you can roll it over to your Roth account. I'm a Retired Boomer: 3 Things I Wish I'd Done Differently To Prepare for Retirement Longevity comes with some enormous tax advantages — and you don't even have to become a landlord. Eid pointed to tax benefits baked into passive real estate investments like syndications and equity funds. 'Depreciation allows property investors to deduct the cost of the buildings over several years,' he said. 'Investors also benefit from cost segregation, which accelerates this process.' Because 5 Types of Vehicles Retirees Should Stay Away From Buying is inherently an illiquid investment, most investors hold it long-term. Thus, they pay the lower long-term capital gains tax rate on profits. However, they may not even have to pay that. 'For those looking to reinvest their gains, a 1031 exchange allows them to defer taxes by reinvesting the proceeds into a similar property,' Eid noted. The options don't end there, either. Vince DeCrow, founder of RISE Investments, likes Qualified Opportunity Zone funds. 'The QOZ program lets investors make real estate investments and defer their capital gains taxes through the end of 2026 (which may get extended through 2028),' he explained. 'Longer-term investments can appreciate tax-free through the end of 2047. These funds offer tax advantages similar to Roth IRAs.' As a win-win, you can give money to causes you believe in — and avoid paying taxes in the process. The better you plan out your giving, the better your tax benefits. 'Don't sell stock to give cash to charity,' advised Powell. 'Instead, transfer the appreciated stock to a Donor Advised Fund and then sell the appreciated stock to donate. This way you avoid the capital gains tax.' Another strategy to save on taxes involves making many years' worth of your charitable donations in the same tax year. 'This allows you to exceed the standard deduction threshold, enabling you to itemize and claim larger tax deductions,' explained Eid. If you do any self-employment work, whether full- or part-time, you could multiply your tax benefits by forming a business. 'This can qualify you for many business-related deductions without having to itemize your personal deductions,' explained Luscombe. 'You can even deduct part of your home expenses if you have a qualifying home office.' That goes beyond your rent or mortgage payment. You can also potentially deduct your home internet, phone, utilities and other expenses. Sure, the average American pays around half a million dollars in lifetime taxes, but residents in some states pay far more than others. For example, New Jersey residents pay nearly $1 million ($987,117) in taxes over their lifetimes, according to the Self Inc. study. Meanwhile, residents of West Virginia pay an average of $358,407. You don't necessarily need to stick around and pay high federal taxes either. Having lived abroad for a decade, I've personally paid little in taxes. The foreign earned income exclusion, for instance, makes my first $130,000 in income in 2025 tax-free. You can't avoid taxes entirely — but you can reduce them. Get strategic about reducing your lifetime tax burden to keep more of your hard-earned money for yourself and your family. More From GoBankingRates6 Reasons Your Tax Refund Will Be Higher in 2025 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth 10 Genius Things Warren Buffett Says To Do With Your Money This article originally appeared on Americans Pay $500K in Taxes Over Their Lifetimes — 9 Ways To Cut the Cost Down Sign in to access your portfolio
Yahoo
02-03-2025
- Business
- Yahoo
9 Tax Breaks the Middle Class Should Know Of
Paying taxes is never fun. But if you're part of America's middle class — defined as those who earn between two-thirds and double the median income — you could qualify for some tax breaks. Read More: Find Out: From tax deductions that lower your taxable income on a dollar-per-dollar basis to tax credits that reduce your tax liability, here are some tax breaks the middle class should know about. Did you pay education costs last year? You could be eligible for a tax break or two. 'There are almost too many tax breaks related to education to keep track of,' said Mark Luscombe, CPA and principal analyst at Wolters Kluwer Tax & Accounting. 'There are 529 plans and Coverdell Education Savings Accounts for tax-favored funding of future education expenses.' With a 529 plan, your contributions aren't tax deductible, but they can earn interest. You can use that money on qualified education expenses without paying federal tax. A Coverdell education savings account is also meant for qualified education expenses. Contributions aren't tax deductible, but distributions are tax-free when used for education expenses. Others education tax breaks include: American Opportunity Tax Credit: A maximum $2,500 per eligible student to help with the first four years of higher education costs. Lifetime Learning Credit: $2,000 tax credit to offset the cost of undergraduate, graduate and professional degree courses. It can also help with job-related education. Student loan interest deduction: If you've paid student loan interest, you could deduct up to $2,500 in interest paid during the year. U.S. Savings Bonds: Some savings bonds qualify for a tax break when used to pay tuition and other qualifying education expenses. Income limits and other criteria apply. Discover Next: If you're a middle-class business owner, you could potentially qualify for a tax break by switching from an S-Corp to a C-Corp. 'Since the [Section] 199A deduction hasn't really kept up with inflation, every year there are more taxpayers I see who would benefit from a C-Corp rather than an S-Corp,' said Crystal Stranger, senior tax director and CEO of OpticTax. This tax break works for upper-middle-class taxpayers, too. 'For upper-middle-class taxpayers, the tax rate is often lower, especially if there are international sales that will qualify for the 13.125% effective tax rate after applying the Foreign Derived Intangible Income discount,' said Stranger. 'And when selling the company only C-Corps are eligible for tax-free gains with the QSBS deduction, and S-Corp owners miss out.' There's also a tax break for saving for retirement. For example, you could get the Saver's Credit for contributing to a 401(k). This credit is up to $2,000 or $4,000 if married filing jointly. The exact credit amount depends on your income. Contributing to other accounts, like an IRA, could also get you a tax break. Any contribution to a Traditional IRA is tax-deductible. Annual contribution limits depend on the year and your age. For 2024, you can contribute up to $7,000 or $8,000 if you're 50 or older. As per IRS rules, you can deduct up to 50% of your adjusted gross income (AGI) in charitable contributions. Some people can only deduct 20% to 30%. To count, those charitable contributions must be made to a qualified organization like a public charity or private operating foundation. You'll also need to itemize deductions, rather than take the standard deduction. More From GoBankingRates6 Reasons Your Tax Refund Will Be Higher in 2025 7 Tax Loopholes the Rich Use To Pay Less and Build More Wealth How Much Money Is Needed To Be Considered Middle Class in Every State? This article originally appeared on 9 Tax Breaks the Middle Class Should Know Of Sign in to access your portfolio
Yahoo
01-03-2025
- Business
- Yahoo
What is the Saver's Credit, and do I qualify?
(NewsNation) — Millions of Americans can get a tax break if they contribute to a retirement account, but many don't take advantage of it. The Retirement Savings Contributions Credit, or 'Saver's Credit,' is a tax benefit for low- to moderate-income taxpayers who contribute to a retirement plan like a 401(k) or individual retirement account (IRA). It's worth up to $1,000 for single filers and up to $2,000 for those who are married filing jointly, depending on how much they make and contribute to their retirement account. But the saver's credit is 'a well-kept secret,' Catherine Collinson, CEO and president of Transamerica Center for Retirement Studies (TCRS), said in a recent report. 4 ways to maximize your tax refund A recent TCRS survey found that just over half (51%) of U.S. workers know about the credit. That percentage is even lower (44%) among those who could qualify for it: households that bring in less than $50,000. According to the IRS, only 5.8% of tax returns claimed the Saver's Credit in 2022. Here's what to know about the Saver's Credit and how much you could save. The Saver's Credit allows eligible taxpayers to claim a tax break for contributing to a retirement account like a 401(k) or IRA. The credit can be worth up to $1,000 for single filers who contribute $2,000 to a qualifying retirement account. Married couples filing jointly can offset 50% of retirement contributions on as much as $4,000 — making the credit worth $2,000 to them. It's a tax credit, not a tax deduction, which means it lowers your tax bill dollar for dollar. 'A tax credit is the holy grail of tax benefits,' Mark Steber, chief tax information officer at Jackson Hewitt Tax Service, told NewsNation in a recent interview. For example: With a $1,000 tax credit, your $2,000 tax bill would be lowered to $1,000, whereas a tax deduction lowers your taxable income, not your tax bill directly. The downside is that the Saver's Credit is nonrefundable, meaning it can reduce the tax you owe to zero, but it won't provide you with a tax refund. That means those who don't owe federal income tax don't benefit. 7 key tax terms you should know The Saver's Credit is meant to help those with modest incomes build their nest eggs, so not everyone qualifies. To be eligible, your adjusted gross income (AGI) needs to fall within certain thresholds. Single filers must have an AGI under $38,250. Those who are married filing jointly can't have an AGI above $76,500. Of course, you'll also have to contribute to a retirement account, such as any of the ones listed here. Your AGI determines your credit amount, which can be either 50%, 20% or 10% of your retirement contribution. Those who make less can have more of their retirement contribution offset. Here's how the credit rates and income limits break down for tax year 2024 (taxes you file in 2025): Credit rate Married filing jointly Head of household All other filers* 50% of your contribution AGI not more than $46,000 AGI not more than $34,500 AGI not more than $23,000 20% of your contribution $46,001- $50,000 $34,501 – $37,500 $23,001 – $25,000 10% of your contribution $50,001 – $76,500 $37,501 – $57,375 $25,001 – $38,250 0% of your contribution more than $76,500 more than $57,375 more than $38,250 To qualify, you also have to be: Age 18 or older, Not claimed as a dependent on another person's return, and Not a student Find out if you qualify for the Saver's Credit using the IRS tool here. The size of the credit depends on your income and filing status, but it tops out at $1,000 for single filers and $2,000 for married couples filing jointly. The math works like this: The maximum retirement contribution that can go toward the credit is $2,000 for a single filer and $4,000 for a married couple. So, at the top credit rate, 50%, those contributions would be worth $1,000 and $2,000, respectively. Here are a couple of scenarios: A single filer with an adjusted gross income of $35,000 contributes $2,000 to an IRA. That person would be eligible for a 10% credit, offsetting their retirement contribution by $200. A married couple filing jointly with an adjusted gross income of $50,000 contributes $2,000 to an IRA. That couple would be eligible for a 20% credit, a tax benefit worth $400. In 2022, the average amount of the Saver's Credit was $194, according to TCRS. It's not too late to contribute to an IRA for the 2024 tax year. The IRS allows tax filers to put money in an IRA until April 15, 2025, and still get the tax break for 2024. What is a Roth IRA for kids, and how does it work? 'It is one of the only — if not the only thing — you can do after year-end up until the tax due date to affect last year's taxes,' Steber said. Putting money into an IRA could make you eligible for the Saver's Credit, but there are other tax benefits as well. For example, contributions to a traditional IRA can reduce your taxable income. The Saver's Credit is going away in 2027 and being replaced by a new program called the 'Saver's Match.' Instead of receiving a credit, eligible individuals will have money contributed directly to their retirement account paid by the U.S. Treasury. 'The new match has the potential to benefit millions of low-income households, as even those who don't pay federal income taxes will be able to claim the matching federal contribution to their retirement accounts,' the Bipartisan Policy Center noted in a recent report. According to the IRS, a qualifying taxpayer who contributes $2,000 to a retirement account like an IRA can receive as much as $1,000, which is matched by the Treasury. 'Saver's Match may create an incentive to save for some people that the Saver's Credit does not reach,' the Congressional Research Service wrote in a 2023 report. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Yahoo
18-02-2025
- Business
- Yahoo
Millions Of Americans Could Get Up To $1,000 A Year Under New Retirement Match Program
A new federal retirement savings program could boost wealth by up to 12% for eligible Americans, with single women and minorities standing to gain the most, according to a Morningstar report last month. The Saver's Match program, launching in 2027, will replace the current Saver's Credit and could benefit 21.9 million Americans, the Employee Benefits Research Institute reports. The program offers up to $1,000 in annual federal matching contributions for retirement savings. Single taxpayers earning up to $20,000 annually, or joint filers making up to $40,000, can receive a 50% match on retirement contributions up to $2,000. Reduced benefits extend to single filers earning between $20,000 and $35,000. Don't Miss: The average American couple has saved this much money for retirement —? Can you guess how many Americans successfully retire with $1,000,000 saved?. The program particularly benefits single women, who could see retirement wealth increases of up to 13.13%, according to Morningstar. Non-Hispanic Black and Hispanic Americans could experience gains of 14.57% and 12.10% respectively. 'It's a great tool to help incentivize savings and build on the principles of behavioral finance,' Spencer Look, associate director of retirement studies at Morningstar Retirement, told CNBC. 'Even if people only qualify for a partial match, this is free money to get from the government for retirement.' The new program improves upon the current Saver's Credit, which only 5.7% of taxpayers claimed in 2021, according to Internal Revenue Service data. Unlike its predecessor, the Saver's Match doesn't require tax liability to claim benefits. Trending: Workers in industries prone to retirement income shortfalls, including agriculture and retail, are projected to see larger wealth increases compared to other sectors. The program deposits matching funds directly into qualified retirement accounts. Successful implementation will require coordinated promotion between the Treasury Department and retirement plan sponsors to reach eligible participants, Morningstar researchers said. The long-term impact of the matching contributions could be substantial. A 22-year-old investing $2,000 annually with an 8% return could accumulate roughly $835,000 by retirement at age 67. Adding the maximum $1,000 match would increase the annual contribution to $3,000, potentially growing the retirement savings to $1.25 million. 'Seemingly small amounts of money may not feel like they'll make a huge difference. But they do when they can compound and add up over time,' Look told CNBC. Read Next: Deloitte's fastest-growing software company partners with Amazon, Walmart & Target – Many are using retirement income calculators to check if they're on pace — Up Next: Transform your trading with Benzinga Edge's one-of-a-kind market trade ideas and tools. Click now to access unique insights that can set you ahead in today's competitive market. Get the latest stock analysis from Benzinga? APPLE (AAPL): Free Stock Analysis Report TESLA (TSLA): Free Stock Analysis Report This article Millions Of Americans Could Get Up To $1,000 A Year Under New Retirement Match Program originally appeared on © 2025 Benzinga does not provide investment advice. All rights reserved. Sign in to access your portfolio
