Let’s skip the joke about death and taxes. You can’t get out of either one. But if you’re efiling income tax, things just got a whole lot more complicated.
The good news is you’re not the only one figuring things out – the IRS received over 127 million efiling receipts for income tax in the 2017 season, 52 million of which were self-prepared.
If you’re looking to the new tax season with trepidation towards efiling your income tax, use these three tips to make your life easier.
1. Disclose Your Assets
It’s not just for income anymore.
If you hold foreign assets, you’ll need to disclose them in your U.S. income taxes. This is mostly so the IRS doesn’t think you’re evading taxes using foreign assets.
Here’s how it works.
The Reporting Threshold
The Foreign Account Tax Compliance Act (FATCA) requires that U.S. taxpayers with assets above the reporting threshold ($50,000) to report those assets using Form 8938, which is sent with your income tax return.
If you’re a business, don’t worry – for now, the law only applies to individuals. Keep your ears open, though.
Keep in mind that thresholds change if you file as a single or file separately from your spouse. It’s also more complicated based on where you live. Keep reading to find out why.
Basically, the assets have to be worth more to require filing. Here’s how much.
If you’re married or file jointly, your assets must be worth at least $400,000 by the end of the tax year OR $600,000 throughout the year. This is true even if only one spouse lives abroad.
If you’re not married or file alone, the total value of your assets must be at least $200,000 by the end of the tax year or $300,000 at any time throughout the year.
Taxpayers in the U.S.
The short version of the story? Cut everything in half. Read the long version, though, just in case.
If you’re unmarried living in the U.S., your foreign assets have to be worth at least $50,000 by the end of the tax year, or $75,000 throughout the year.
If you’re married but file separately, the same rules apply. To calculate the value of any assets you own jointly with your spouse, include half the value of any specified foreign asset.
If you’re married, double it – your assets have to be worth at least $100,000 by the end of the tax year, or $150,000 throughout the year.
Not based in the U.S.? Online Tax Return AU can help with your efiling income tax questions for all the Aussies out there.
2. Do Your Interest Income Checklist
The whole point of an income tax is that it’s based on the entirety of your income, right? So why wouldn’t you report your interest income when efiling income tax?
We know it is easy to miss the little things. Small amounts of interest from oddball financial sources are common culprits. Here are a few common types of interest income you may be forgetting, and what forms you’ll need to report them.
Types of Interest Income
There are three main types of interest income:
- Corporate bonds and some government securities
- Interest-bearing accounts including checking and savings
- U.S. government obligations, though only at the federal level
It helps to think of interest income like regular income because it’s going to be taxed that way. In fact, it will get taxed at your top marginal tax rate (the amount of tax paid on an additional dollar of income.)
Find the Right Forms
So, with all those types of interest income, what forms do you use when efiling income tax?
For investment income, the payer will need to issue a Form 1099-INT, it’s up to the folks who receive the Form 1099-INT to transcribe that information correctly. Pay attention when you do this because there are a lot of boxes all asking for details about your interest income.
(Oh, and if you’re thinking of building up your financial future with a stronger investment portfolio? Check out these 5 tips to get you started. May the taxes be ever in your favor.)
3. Report Your Bank Accounts (Correctly)
No, you can’t just report one bank account. That doesn’t go over well. Actually, it can result in non-delivery of an otherwise eligible tax return.
Don’t make that dumb mistake. You’re smarter than that.
You might also skip reporting because you assume either a) interest on these accounts isn’t taxable or b) the tax has already been deducted. On both counts, you would be dead wrong.
If you live in the good old U.S.A., time to break out your pal Form 1099-INT again and get friendly.
One important thing to know before you go nuts over your taxable income in your bank account: you do NOT have to pay taxes on your account balance.
Once more for the kids in the back: the account balance of your checking or savings accounts ARE NOT taxable. If you have a savings account with a with a balance of $10,000 (good to live like a king) with an interest rate of 0.2%, you’ll get taxed on the extra $20 interest.
Efiling Income Tax Made Easier
Taxes are confusing. Life is too. That’s why we put so many guides, how-tos and great lists of useful information together – to make things a little bit easier, so you can focus on what’s important.
For example: what the heck is an annuity? And how the heck does it work? There’s a guide for that.
Considering spreading the namaste love and opening a yoga studio? Read this guide for six tips to get your om on – the smart business-owner way. Or, if you’re a regular athlete who wants to spread the physical fitness love affair, check out this guide to starting a sports blog (and making money while you’re at it.)
Our goal is to provide quality insights on topics that matter to you on work and home-related topics, whatever the subject may be. Because independent research shouldn’t make you want to scream.
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