Do You Know These 6 Tax Facts?

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Tax Day is almost here! Did you file your taxes early or are you waiting for that last weekend? For those procrastinators out there: get started now and you’ll be done before you know it. We ask you simple questions and do all the calculations on the back end based on your answers. No matter your filing style, check out these six tax-savvy tax facts you may not know. 

1. …you can be a financial time traveler at tax time

Even though the calendar says 2017, you can still reduce your 2016 taxable income by making a contribution to a traditional IRA no later than April 18. You can contribute and may be able to deduct up to $5,500, or $6,500 if you are age 50 or older. And if you are married, your spouse can also make a contribution! That’s a tax deduction of up to $11,000 (or $13,000 if you’re both 50 or older). If you have to pay someone, it might as well be yourself, right? If you are able to make a contribution, be sure to let your plan administrator know that your contribution made this year is actually for last year so you can deduct it when you file your 2016 taxes.

2. …you can change your W-4 withholding whenever you want

How much income tax is withheld from your paycheck is determined by your Form W-4. Your employer deducts taxes based on the number of allowances you claim. But your W-4 is not just a “first day of work thing”. You can make adjustments to it any time you’d like. In fact, the key to paying the right amount of tax is to update your W-4 whenever you have a major life change, like your spouse changes jobs, you get married or divorced, or you have a baby. Getting a second job is the most common reason to adjust your W-4 because it will increase your income, meaning your tax liability will likely go up, too. TurboTax has a W-4 Withholding Calculator that makes it easy to see how many withholding allowances you should claim to boost your tax refund — or your take-home pay.

3. …bonuses are taxed differently than your annual income

Bonuses are considered “Supplemental Wages” and have a different tax rate. As such, bonuses (like other supplemental wages) are treated differently than ordinary wage or salary income when it comes taxes withheld at payout. There are two ways of withholding taxes from your bonus: the percentage method and the aggregate method. TurboTax has a bonus calculator to estimate how much tax you expect to see withheld when you are paid your bonus. Don’t worry, because taxes may be withheld at a higher tax rate than your actual tax rate when bonuses are paid out, you may see some of the amount withheld come back in a tax refund when you file your taxes.

4. …a state tax refund may be considered income

For itemizers, it’s one of the stranger parts of the tax code. In general, if last year you deducted your state and local income taxes AND received a state tax refund last year, then your total state tax refund may be considered taxable income. If you didn’t deduct state and local income taxes last year on your federal taxes, you don’t need to pay taxes on your state and local tax refund this year. For instance, if you took the standard deduction last year, then your state tax refund received last year is tax free this year. TurboTax will ask you simple questions about your previous year state tax refund if you deducted state taxes last year and will perform calculations to determine how much of that refund is taxable based on your answers.  

5. …you may be self-employed and not realize it

If you take part in the “sharing economy” by driving for Lyft or delivering for Postmates, then you’re self-employed – even if you also have a full-time job. If you were self-employed in 2016, or worked on a contract basis with no taxes withheld, your income may be reported to you on different tax forms: a 1099-MISC or 1099-K. Freelancers and consultants who make over $600 can expect to receive a 1099-MISC, whereas those who earned income as a freelancer working in the on-demand economy, like Uber or Lyft, may receive a 1099-K. Not to worry: TurboTax Self-Employed will ask you questions about you and your business and give you the tax deductions and credits you are eligible for.

6. …the mileage deduction rate changed this year

Whenever you drive for business, medical reasons, moving for work or in support of a charitable organization, you may be able to get a mileage deduction and save money on your taxes. The 2017 standard mileage rates for the use of a car (also vans, pickups or panel trucks) changed this year:

  • 53.5 cents per mile for business miles driven, down from 54 cents in 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents in 2016
  • 14 cents per mile driven in service of charitable organizations, unchanged from 2016

In general, you can only claim the deduction if you use your personal vehicle for your business, medical, moving, or charitable purposes. For example, if you use a vehicle that was purchased by a business you cannot claim business mileage.

Feeling more tax-savvy? Awesome! Still a tax novice? No problem. TurboTax asks simple questions about you and gives you the tax deductions and credits you’re eligible for based on your answers.

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