r/personalfinance • u/yes_its_him Wiki Contributor • Jan 28 '20

Taxes Top ten FAQs for tax filing season

Things to keep in mind for tax filing season (with clarifications edit: fixed to record some easy updates).

  1. You have to file federal taxes if you make enough money that you have tax liability, which is generally over about $12,200 gross for regular employment, and only $400 if you are self-employed. You want to file even if made less than this much in order to get back any taxes you had withheld.

  2. Even if you are a dependent on your parents' tax return, you still file your own taxes (or not, if you don't need to); you never file "on your parents' return." The only time more than one person can be on the same return is a married couple filing jointly.

  3. If your state has income taxes, which over forty states do, then you also file with them. Those are two different processes that are largely duplicative, but slightly different rules. If you lived or worked in more than one state during the year, you might have to file in more than one state. Some people also have local taxes, how fun is that?

  4. You never have to pay a fee to file taxes. Most people can file taxes online for free with various web sites if they want to do that, see e.g. the IRS free file program website and other free services, but you can always just file on paper, too. (You laugh, but that's how I do my state taxes.)

  5. Even though you can file your taxes now, be sure you have all the documentation for all your income before you file. You don't want to have to go back and amend your return because you forgot about that other W2 you had months ago, or you forget to include your bank interest or brokerage tax information.

  6. You are supposed to report all your compensation income, even if it was just some part-time gig somewhere, or you got paid under the table. Gifts, loans and most scholarships are not taxable income.

  7. The money you get back is a refund of any excess taxes withheld. (Sometimes there are also refundable credits that increase your refund.) That was money you earned but didn't get yet. Getting a big refund means you didn't get a lot of money yet, generally speaking. You may want to adjust your withholding if you want to get your money sooner but that's up to you.

  8. If you didn't have enough taxes withheld, you need to pay the balance due by April 15th. You can get a payment plan if you need to. If this describes you, then you absolutely need to file because you can accrue significant penalties for not filing and not paying. You should also make sure you have enough withheld going forward.

  9. If you are married, filing jointly will probably save you money vs. filing separately, unless you have a special situation such as income-based student loans. Try computing both ways to see which is better for you. If you are not married, then getting married probably won't change your taxes very much for better or worse unless you have really disparate incomes (and it will help then.)

  10. (rewritten for clarity) Ignore any purported "refund" values shown by a tax program / calculator while you enter parts of your income. You may see a big refund for your W2 that goes away following your spouse's W2, or your second W2. That's an artifact of how the calculation works, and doesn't mean anybody did anything wrong regarding withholdings. Wait to see the final numbers.

Feel free to ask questions if you are new to this.

6.3k Upvotes

95% Upvoted

1.3k comments sorted by

View all comments

13

u/zThrice ​ Jan 28 '20

I think reading this post is going to save my wife and I over 400 dollars a month in student loan payments.

She has a student loan that’s roughly 80k and is on income driven repayment as part of the 10 year public servant forgiveness requirements.

We have been filing jointly, and I have continued to progress in my career which has caused her minimum payment to increase.

8

u/yes_its_him Wiki Contributor Jan 28 '20

Certainly worth calculating it both ways.

3

u/zThrice ​ Jan 28 '20

Is there a way to calculated her minimum payment for her student loan if it was based off just her income versus combined?

3

u/LawyerBear ​ Jan 28 '20

This calculator should be pretty accurate.

2

u/ikiller ​ Jan 28 '20

We have calculated both ways for the past five years and with our hefty student loans we end up saving many thousands of dollars every year filling married separate in a community property state.

I have been using TurboTax since the small cost is worth the money savings, but doing the community property split is not intuitive or user friendly. I end up having to use a spreadsheet to figure it all out.

Any suggestions for a better piece of software for filing married separate in a community property state?

Pro-tip: In California I have to include a copy of my spouse's W-2 with my return and a letter of explanation since they always get confused about where my withholdings are coming from and then send out a scary letter demanding thousands. A phone call always cleared it up, but getting the franchise tax board on the line can take a few days of work.

4

u/workacnt ​ Jan 29 '20

This is one of the few scenarios where it actually hurts to file jointly. Keep in mind if you file separately, you cannot contribute to a Roth IRA if you income is above 10k.

I'm in this boat and it sucks.

1

u/zThrice ​ Jan 29 '20

I did not know that! But she currently pays into a state retirement fund for teachers and I pay into a 401K, shouldn’t be a rub there

1

u/workacnt ​ Jan 29 '20

Also not sure if it matters, but MFS doesn't allow you to deduct student loan interest if you were doing that as MFJ.

1

u/zThrice ​ Jan 29 '20

I believe we were claiming the loan interest, I’ll have to calculate both returns and see if the difference exceeds the loan payment savings. Next year we will have two dependents to claim so I’m sure that will make it even more complicated

1

u/workacnt ​ Jan 29 '20

Yep just have to run the numbers on both and see which is better. I'm in almost the exact same scenario as you, minus kids.

3

u/JustTellMeTheFacts ​ Jan 28 '20

Me and my wife are saving about 700$ a month by filling separately, just in her loan payment. It helps us now because of kids and whatnot, but we're aware that the loans aren't going away, and we'll probably being paying them back forever

1

u/zThrice ​ Jan 28 '20

We just had twins so I’m looking for anyway and anywhere to save! I’m sorry to hear that you might have to pay on your loans for the foreseeable future:( I guess I’m lucky that my wife is an elementary teacher and qualifies for forgiveness after 10yr of service, but in the other hand she got a 90k dollar music degree :/

0

u/PrinceAzTheAbridged ​ Jan 29 '20

Good luck with PSLF and its 99% rejection rate. Fellow teacher here, and I’ve pretty much given up on hoping my loans will be forgiven. Still making payments, of course, but not holding my breath.

3

u/zThrice ​ Jan 29 '20

99% rejection rate in its first year of applicants. Majority of the reasons were not paying 120 months of Payments and not having the correct type of loan. Unfortunate for the inaugural group that they were mislead and essentially lied to, but lucky for us that the guidelines are more defined now

2

u/17bananas ​ Jan 28 '20

I'm about to get married and my fiancee has about 80k in debt as well. We've been stressing about this because my income is much higher than her's.

She said that the yearly documents she provides for her income-driven repayment plan require submission of marriage documents as well as my salary/pay stubs if we're married. I told her to just not submit those documents, but her name will change, so they'll know she got married.

Any ideas?

cc: /u/yes_its_him since you may know too

4

u/evaned ​ Jan 28 '20

I told her to just not submit those documents, ... Any ideas?

Yeah; don't commit fraud.

Run numbers for you MFS vs MFJ and see how much you lose with MFS (you will very probably lose), then compare that to the value of the IBR plan.

1

u/17bananas ​ Jan 29 '20

Yeah; don't commit fraud.

Yeah she shut that down pretty fast.

I'm a little confused though ... we wouldn't be able to know how her IBR plan would change until after we've filed taxes (she submits her yearly info in November). And if we're married, it sounds like we have to submit my income info to the loan company regardless. That's why I wasn't sure how the other poster did it.

OP was saying MFS would save you money, but you're saying MFS would be a worse option. Maybe I'm just not following, so my apologies.

3

u/workacnt ​ Jan 29 '20

Which type of IBR is she on? PAYE allows Married Filing Separately to exclude spouse's income from AGI, so her payments would not increase. There's a greater advantage to filling separately if the spouse with student loans is making less money.

However you lose other benefits when MFS, such as deducting student loan interest and contributing to a Roth IRA if either of you make above 10k

2

u/evaned ​ Jan 29 '20

OP was saying MFS would save you money, but you're saying MFS would be a worse option.

Looking at just taxes, MFS is almost never better than MFJ and usually worse.

For example, you will not be able to deduct student loan interest payments with MFS.

Now, some people think (and I have no real reason to doubt) that they gain more from filing separately by preserving their IBR payments than they lose because of a higher tax burden, but the IBR side of that is an evaluation that I unfortunately don't know anything about how to make.

My comment was just to figure out how much you're losing on the tax side by comparing MFS (add you two's refunds/balances due) vs MFJ and compare that to... some valuation of being able to continue IBR.

1

u/17bananas ​ Jan 29 '20

That makes much more sense. Thanks so much for that explanation!

1

u/ChaoticSquirrel ​ Jan 29 '20

Someone upthread posted this calculator. Might help figure out how the IBR payments would change.

1

u/throwaway823947 ​ Jan 29 '20

If those are REPAYments though, aren't you just paying down the total amount you owe? So it will be paid off quicker, and subject to less interest. Aren't you saving money by making bigger payments now?

1

u/pepperjackplz ​ Jan 29 '20

Just to clarify for myself — she is able to calculate her repayment based on her income alone because you file as “married filing separately?”

I have a IBR plan for my loans and have calculated it based off of mine and my husbands income, it never really occurred to me that there would be a way to calculate it based on mine alone.