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May 3, 2025

Personal Finance, Tax Central

What Are Inheritance Taxes?

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Inheritance taxes, also known as estate taxes, are taxes that are imposed on the transfer of property from a deceased person to their heirs. These taxes are imposed on the value of the estate, which includes all of the deceased person’s assets and property at the time of their death. The first thing to understand about inheritance taxes is that not all states have them. Currently, only a handful of states have an inheritance tax, including Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The federal government also has an estate tax, which applies to estates with a value exceeding $11.7 Million for single filers and $23.4 Million for married couples. When a person dies, their estate is responsible for paying any inheritance taxes that may be owed. The estate is typically responsible for paying the taxes before distributing the assets to the heirs. This means that the value of the assets that are passed on to the heirs may be reduced by the amount of the inheritance taxes owed. The inheritance tax rate can vary depending on the state and the value of the estate. In states that have an inheritance tax, the rate is typically progressive, meaning that the tax rate increases as the value of the estate increases. For example, in Maryland, the inheritance tax rate ranges from 10% to 16% depending on the value of the estate and the relationship between the deceased person and the heir. It’s important to note that certain assets may be exempt from inheritance taxes. For example, most states do not tax assets that are passed on to a spouse or charitable organizations. Additionally, certain types of assets, such as life insurance proceeds, may also be exempt from inheritance taxes. Inheritance taxes can be a complex issue, and it’s always a good idea to consult with a tax professional or attorney if you have any questions. They can help you understand the laws in your state and how they apply to your specific situation. In summary, inheritance taxes, also known as estate taxes, are taxes that are imposed on the transfer of property from a deceased person to their heirs. These taxes are imposed on the value of the estate, which includes all of the deceased person’s assets and property at the time of their death. Not all states have these taxes, and the federal government also has an estate tax that applies to estates over $11.7 Million for single filers and $23.4 Million for married couples. The rate of the tax varies depending on the state and the value of the estate. Certain assets may be exempt from inheritance taxes. It’s always a good idea to consult with a tax professional or attorney if you have any questions about inheritance taxes.

Tax Central

Benefits of Filing Your Taxes Early

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Filing your taxes early can be a smart move for several reasons. By taking care of your taxes as soon as possible, you can avoid the last-minute rush and ensure that everything is done correctly and on time. Here are some of the top benefits of filing your taxes early: Get your refund sooner: One of the biggest benefits of filing your taxes early is that you will receive your refund faster. The IRS begins processing tax returns as soon as they are received, so the earlier you file, the sooner you will get your refund. This can be especially beneficial if you are counting on your refund to pay bills or make a large purchase. Avoid potential penalties: Another benefit of filing your taxes early is that you will avoid potential penalties for filing late. The IRS charges penalties for taxpayers who file their taxes after the deadline, so the earlier you file, the less likely you are to incur penalties. Additionally, if you owe taxes and file your return early, you have more time to gather the funds to pay the taxes owed, which can help you avoid additional interest and penalties. Reduced chance of errors: Filing your taxes early gives you more time to review your tax return and ensure that all of the information is accurate. By filing early, you can avoid mistakes that can lead to delays in processing your return, or even an audit. Furthermore, by filing early, you have more time to seek professional help if you are unsure about any aspect of your return. Peace of mind: Filing your taxes early can give you peace of mind by eliminating the stress of waiting until the last minute. By taking care of your taxes early, you can have confidence that everything is done correctly and on time. Plus, you can put the whole process behind you and move on to other things. Avoid Scammers: Filing early can also help you avoid potential scams. Tax season is a prime time for scammers to prey on unsuspecting taxpayers. They may try to steal your personal information or trick you into paying for services you don’t need. By filing your taxes early, you can get your return in before the scammers have a chance to take advantage of you. In conclusion, filing your taxes early has many benefits. From receiving your refund sooner, to avoiding penalties, to reducing the chance of errors and having peace of mind, filing your taxes early is a smart move. Additionally, it can help you avoid tax-related scams as well. Therefore, it is always advisable to file your taxes as soon as possible.

Personal Finance, Tax Central, Tax Problems

What to Do If you Can’t Afford to Pay your taxes?

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Paying taxes can be a significant financial burden for many people, especially if you’re struggling to make ends meet. If you find yourself unable to pay your taxes, it’s important to take action right away to avoid additional penalties and interest. Here are some steps you can take if you can’t afford to pay your taxes: File your tax return on time: Even if you can’t pay your taxes, it’s important to file your tax return on time to avoid additional penalties. If you file for an extension, you’ll still need to pay your taxes by the extended deadline. Apply for a payment plan: The IRS offers several payment plans to help taxpayers who can’t pay their taxes in full. One option is the short-term payment plan, which allows you to pay your taxes in full within 120 days. Another option is the long-term payment plan, which allows you to pay your taxes over an extended period of time, usually up to 72 months. Consider an Offer in Compromise: An Offer in Compromise is a settlement agreement between the taxpayer and the IRS, which allows you to settle your tax debt for less than the full amount owed. This option is generally only available to taxpayers who can’t pay their taxes in full and don’t have the ability to pay in the future. Seek professional help: If you’re unable to pay your taxes, it’s important to seek professional help. A tax professional can help you understand your options, evaluate your financial situation and help you navigate the process of resolving your tax debt. Be aware of Scammers: Be aware of scammers who might take advantage of your situation by posing as the IRS or a tax professional. The IRS will never call or email you asking for personal or financial information. If you receive a call or email that seems suspicious, hang up or delete the email. Look into hardship programs: Some states offer hardship programs that can help taxpayers who are unable to pay their taxes. These programs may include installment agreements, tax reductions, or even forgiveness of taxes owed in certain circumstances. In conclusion, if you’re unable to pay your taxes, it’s important to take action right away to avoid additional penalties and interest. The IRS offers several options for taxpayers who can’t pay their taxes in full, including payment plans, an Offer in Compromise, and professional help. Additionally, be aware of scammers and look into hardship programs that may be available to you in your state. With the right steps, you can get back on track and resolve your tax debt.

Tax Central

Should You Hire A Tax Professional?

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When it comes to filing your taxes, you have a few options: you can do it yourself, use tax software, or hire a tax professional. Each option has its own set of pros and cons, but hiring a tax professional is often considered the best choice for many taxpayers. One of the biggest advantages of hiring a tax professional is the knowledge and expertise they bring to the table. Tax laws and regulations are constantly changing, and a tax professional will be up-to-date on the latest changes and how they apply to your situation. They will also be able to identify deductions and credits that you may not be aware of, which can save you a significant amount of money on your taxes. Another advantage of hiring a tax professional is that they can help you navigate the complex tax forms and paperwork. Tax forms can be confusing and time-consuming, and a tax professional can help you fill them out correctly and ensure that you meet all of the deadlines. They can also help you with tax planning and tax strategy, which can help you save money on your taxes in the long run. Hiring a tax professional can also provide you peace of mind knowing that your taxes are being handled by someone with experience and expertise. Mistakes on your tax return can result in penalties, fines, and even an audit. A tax professional will be able to spot potential errors and help you avoid them. If you are self-employed or own a small business, hiring a tax professional is especially important. Self-employed individuals and small business owners have more complex tax situations, and a tax professional can help you navigate the tax laws and regulations that apply to your business. They can also help you with tax planning and strategy to minimize your tax liability. On the other hand, hiring a tax professional can be costly. It’s important to keep in mind that fees will vary depending on the complexity of your tax situation and the type of service you require. Before hiring a tax professional, it’s a good idea to get an estimate of the cost and compare it to the cost of doing your taxes yourself or using tax software. In conclusion, hiring a tax professional can be a smart choice for many taxpayers. They bring knowledge, expertise and can help you navigate the complex tax laws and regulations. They can also help you identify deductions and credits that you may not be aware of, and help you with tax planning and strategy. However, it’s important to consider the cost of hiring a professional and weigh it against the cost of doing your taxes yourself or using tax software. Ultimately, it’s your decision, but if you have any doubt or a more complex tax situation, it’s always a good idea to consult a professional.

Personal Finance, Tax Central

How long should You keep tax documents?

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When it comes to tax documents, it’s important to know how long you should keep them. The general rule of thumb is to keep records for three years from the date you filed your original return. However, there are some exceptions to this rule that you should be aware of. One of the main reasons why you should keep your tax documents for at least three years is in case the IRS decides to audit you. If the IRS conducts an audit and you can’t produce the necessary documentation, you may be assessed additional taxes, penalties, and interest. Keeping your tax documents for at least three years will ensure that you have everything you need in case of an audit. Another reason why you should keep your tax documents for at least three years is in case you need to file an amended return. If you discover an error on your original return, you have three years from the date you filed your original return to file an amended return and claim a refund. If you don’t have your tax documents, you won’t be able to file an amended return and claim a refund. If you claim certain types of deductions or credits, it’s recommended to keep your tax documents for longer than three years. For example, if you claim the home office deduction, you should keep your tax documents for six years from the date you filed your original return. This is because the IRS has six years to audit you if it suspects that you’ve understated your income by 25% or more. If you own rental property, you should also keep your tax documents for longer than three years. For rental property, you should keep records for at least three years after you’ve sold the property. This is because the IRS has three years to audit you after you’ve sold the property and claimed a loss or depreciation. In addition, if you have any records related to your retirement accounts, such as 401(k) or IRA, you should keep them until the account is closed or until you have reached the age of 70 and a half. In conclusion, the general rule of thumb is to keep records for three years from the date you filed your original return. However, there are some exceptions to this rule that you should be aware of. If you claim certain types of deductions or credits, own rental property or have retirement accounts, it’s recommended to keep your tax documents for longer than three years. The most important thing is to keep accurate records and don’t discard your tax documents until you are sure you don’t need them anymore.

Personal Finance, Tax Central

When can I expect my tax refund?

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One of the most common questions taxpayers have is, “When can I expect my tax refund?” The answer is that it depends on when and how you filed your tax return. The IRS generally issues refunds within 21 days, but there are a few factors that can impact the timing of your refund. The first factor that affects when you can expect your refund is when you file your tax return. If you file your tax return early, you’ll get your refund sooner. The IRS begins accepting tax returns on January 1st and the earlier you file your return, the sooner your refund will be processed. However, if you file your tax return closer to the deadline, your refund will be delayed. The second factor that affects the timing of your refund is how you file your tax return. If you file your tax return electronically, you can expect your refund to be processed within 21 days. Electronic filing is the fastest and most efficient way to file your taxes. On the other hand, if you file a paper tax return, it may take six to eight weeks for your refund to be processed. Another factor that can affect the timing of your refund is if your return contains errors or is incomplete. If the IRS finds errors or missing information on your return, they will send you a letter requesting additional information. This can delay your refund until the issues are resolved. Another important factor to consider is the refund status check. You can check the status of your refund by visiting the IRS website and using the “Where’s My Refund?” tool. This tool will provide you with information on the status of your refund, including the date it was processed, the date it was approved, and the date the refund was sent. The IRS also offers the option to receive your refund in the form of a direct deposit. This option is faster and more secure than receiving a paper check in the mail. Additionally, if you choose to receive your refund via direct deposit, you can check the status of your refund using the “Where’s My Refund” tool. Finally, it’s important to keep in mind that the IRS may hold your refund if you owe taxes or other debts. If this is the case, your refund will be applied to the outstanding debts, and you’ll be notified of the action in a letter from the IRS. In conclusion, when you can expect your tax refund depends on when and how you filed your tax return. The IRS generally issues refunds within 21 days, but there are a few factors that can impact the timing of your refund. To get your refund faster, file your tax return early and electronically. You can also check the status of your refund using the “Where’s My Refund” tool and opt to receive it via direct deposit. Remember that if you owe taxes or other debts, your refund may be held by the IRS.

Record Keeping Tips, Tax Central

Top Sources of Nontaxable Income

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Nontaxable income refers to any type of income that is not subject to federal income taxes. This can include a variety of different sources, and it’s important to understand which types of income fall under this category in order to minimize your tax liability. In this blog post, we’ll take a look at some of the most common sources of nontaxable income. Gifts Gifts are a form of nontaxable income, as long as they do not exceed a certain value. According to the IRS, you can receive up to $15,000 in cash or property from a single individual in a given year without it being subject to taxes. If you receive a gift that exceeds this amount, you will need to pay taxes on the excess value. Life Insurance Proceeds Life insurance proceeds are another form of nontaxable income. If you receive a lump sum payment from a life insurance policy, it is typically not subject to taxes. However, if you receive the payment in the form of an annuity, you may be subject to taxes on the interest earned. Disability Income Disability income, whether from a private disability policy or from the government, is generally not subject to taxes. This includes payments from Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). Inheritances An inheritance is another form of nontaxable income, as long as it is not considered to be part of your estate. Once an inheritance becomes part of your estate, it may be subject to estate taxes. Workers Compensation Benefits Workers compensation benefits are also typically not subject to taxes. These benefits are intended to help employees who are unable to work due to a work-related injury or illness. They can include payments for medical expenses, lost wages, and permanent disability. In conclusion, it’s important to understand the different types of nontaxable income and how they’re treated by the IRS. By knowing which types of income are not subject to taxes, you can take steps to minimize your tax liability and keep more money in your pocket. Keep in mind that these are general guidelines and you should always consult a tax professional or the IRS to get a clear understanding of how taxes apply to your specific situation.

Personal Finance, Record Keeping Tips, Tax Central

Types of tax credits

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Tax credits are a valuable tool for reducing your tax liability and keeping more money in your pocket. They are different from deductions, which reduce the amount of income that is subject to taxes, and can have a bigger impact on your tax bill. In this blog post, we’ll take a closer look at the different types of tax credits and how they can benefit you. Nonrefundable Tax Credits A nonrefundable tax credit is a credit that can only be used to offset the amount of taxes you owe. It cannot be used to receive a refund if the credit amount is greater than the taxes you owe. Some examples of nonrefundable tax credits include the Child Tax Credit and the Lifetime Learning Credit. Partially Refundable Tax Credits A partially refundable tax credit is a credit that can be used to offset the amount of taxes you owe, and the remainder can be used to receive a refund if the credit amount is greater than the taxes you owe. Some examples of partially refundable tax credits include the American Opportunity Tax Credit and the Earned Income Tax Credit. Fully Refundable Tax Credits A fully refundable tax credit is a credit that can be used to receive a refund if the credit amount is greater than the taxes you owe. This means that even if you don’t owe any taxes, you can still receive a refund for the full amount of the credit. An example of a fully refundable tax credit is the Additional Child Tax Credit. Tax credits can have a significant impact on your tax bill and can help you save money. It’s important to understand the different types of tax credits that are available and how they can benefit you. Keep in mind that tax laws and regulations are subject to change, so it’s always a good idea to consult with a tax professional or refer to the IRS website for the most up-to-date information. In conclusion, tax credits are a valuable tool for reducing your tax liability. The types of tax credits include nonrefundable, partially refundable and fully refundable. Nonrefundable tax credits can be used to offset taxes you owe, partially refundable tax credits can be used to offset taxes you owe and receive a refund for the remainder and fully refundable tax credits can be used to receive a refund even if you don’t owe any taxes. It’s important to understand the different types of tax credits and how they can benefit you to maximize your savings.

Record Keeping Tips, Tax Central

What Is Considered Taxable Income?

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Taxable income is a crucial concept to understand when it comes to preparing and filing your taxes. It refers to any type of income that is subject to taxation by federal or state authorities. In this blog post, we’ll take a closer look at what is considered taxable income and the different types of income that fall under this category. Actively-Earned Wages Wages earned from your job, such as your salary or hourly pay, are considered taxable income. This includes any bonuses or commissions you may receive as well. These types of income are typically reported to the IRS on a W-2 form and are subject to both federal and state income taxes. Self-Employment Income If you’re self-employed, your income from your business is considered taxable income. This includes income from freelance work, consulting, or any other type of gig work. Self-employed individuals are responsible for paying self-employment taxes, which include Social Security and Medicare taxes. Investment Income Income earned from investments, such as interest, dividends, and capital gains, is also considered taxable income. Interest income is typically reported on a 1099-INT form, while dividends and capital gains are reported on a 1099-DIV or 1099-B form. Rental Income If you own rental property, the income you earn from renting it out is considered taxable income. This includes any money you receive from tenants, such as rent payments and security deposits. Any expenses related to the rental property, such as property taxes, repairs, and management fees, can be used to offset the income and lower your tax liability. Retirement Income Income from retirement accounts, such as traditional 401(k)s and IRAs, is considered taxable income when you begin taking withdrawals. The same goes for social security benefits if you exceed the limits set by the government. Gambling winnings If you win money from gambling, whether it’s from a casino, lottery, or other source, it is considered taxable income and must be reported on your tax return. It’s important to keep in mind that these are general guidelines and that your specific tax situation may be affected by other factors, such as deductions and credits. Be sure to consult with a tax professional or refer to the IRS website for more information on what is considered taxable income and how it applies to your unique situation. In conclusion, taxable income refers to any type of income that is subject to taxation by federal or state authorities. It includes actively-earned wages, self-employment income, investment income, rental income, retirement income and gambling winnings. It’s crucial to understand what is considered taxable income in order to accurately report your income and minimize your tax liability.

Personal Finance, Record Keeping Tips, Tax Central

Types of Refundable Tax Credits

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Refundable tax credits are a valuable tool for those who may not owe taxes or owe very little taxes, but still want to receive a tax refund. These types of credits can be used to receive a refund even if you don’t owe any taxes. In this blog post, we will take a closer look at two of the most common types of refundable tax credits: the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). The Earned Income Tax Credit (EITC) The Earned Income Tax Credit (EITC) is a refundable tax credit designed to help low-income earners and working families. The credit amount varies depending on your income, filing status, and the number of children you have. To qualify for the EITC, you must have earned income from a job or self-employment and meet certain income requirements. The EITC can be worth up to $6,660 for tax year 2021. The Additional Child Tax Credit (ACTC) The Additional Child Tax Credit (ACTC) is a refundable tax credit that is designed to help families with children. It is based on the Child Tax Credit (CTC), but can be claimed in addition to the CTC if the credit amount is greater than the taxes you owe. The ACTC is worth up to $1,410 per child for tax year 2021. Both the EITC and ACTC are refundable tax credits, meaning that if the credit amount is greater than the taxes you owe, you can receive a refund for the difference. These tax credits can provide much-needed financial assistance for low-income families and those with children. It’s important to note that the tax laws and regulations are subject to change, so it’s always a good idea to consult with a tax professional or refer to the IRS website for the most up-to-date information on the Earned Income Tax Credit and Additional Child Tax Credit. In conclusion, refundable tax credits are a valuable tool for those who may not owe taxes or owe very little taxes, but still want to receive a tax refund. Two of the most common types of refundable tax credits are the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). The EITC is designed to help low-income earners and working families and the ACTC is designed to help families with children. It’s important to understand the different types of refundable tax credits and how they can benefit you, and consult with a tax professional for more information.