Bella Avila
Appearances
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
For example, last tax filing season, as a single filer, the first $11,000 of your income would have been taxed at 10%, whereas this filing season, the first $11,600 is taxed at 10%, keeping more of your income from reaching that higher tax rate. And then I also want to touch on how the standard deduction has changed this year. We can use that same single filer example.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Last year, if you took the standard deduction, you would have gotten a $13,850 deduction. Whereas this year, under the same circumstances, you'll get a $14,600 deduction. This means an extra $750 of your income isn't subject to tax.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
As a refresher for listeners who might not be familiar with the program, the IRS debuted its own tax filing software last year called DirectFile, and it piloted it in 12 states. Despite some confusion about whether or not DirectFile is still up and running this filing season, I can assure you it is.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
And it's more widely available than it was last year, having more than doubled the number of states where it's available to 25. So even more people who have fairly simple tax situations may have the opportunity to file their taxes for free this year. I also wanted to call out the IRS Free File Program as another option for people to file at no cost.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
The IRS partners with tax prep companies each year to give eligible taxpayers access to free software. Which forms and credits are supported can vary by provider, but anyone who had an adjusted gross income of $84,000 or less in 2024 might qualify.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
For sure. So tax software often becomes more expensive the closer it gets to the tax filing deadline. We call this surge pricing. A package that was $30 in February might run you $50 in April. So if you want to get the best deal, filing early generally guarantees you better prices than if you wait until the last minute.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
And if you want to get your hands on your refund sooner, that's another reason to file early. It generally takes the IRS about three weeks to process refunds for e-filed returns. So waiting to file until the last minute means you might not get your refund until early May. And I'll also say that e-filing your return will get you your refund faster than if you mail it.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
So try to avoid the pen and paper.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Absolutely. I won't put our listeners to sleep by diving into the nuances of what makes a dividend qualified or not, but the taxes team does have an article on this for those who are interested. The highlights are that it generally must be paid by a US corporation. The IRS must consider it a dividend and you must have held it for a certain amount of time.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
As for why reinvested dividends might put your income over the allowed limits to contribute to a Roth IRA, the IRS considers dividends taxable income. Even if they were reinvested and you didn't receive them in cash, you still have to report them as income on your tax return.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
If you think divoted income from your brokerage account might continue to be part of your tax situation and put you over those income limits to contribute to a Roth IRA, you might consider looking into opening a traditional IRA which doesn't have income limits for contributions and taking the backdoor Roth IRA approach.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
And lastly, you won't pay taxes when withdrawing contributions from your Roth IRA because you've already paid them up front. But whether you'll pay taxes or penalties on earnings generally depends on age and how long you've held the account.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Exactly.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
To back up a little bit in case some listeners might not know the difference, the standard deduction is a set amount the IRS lets you shave off your taxable income and most people qualify for it. When you itemize your deductions, you forego that standard deduction and instead tally up all your individual expenses throughout the year that the IRS considers deductible.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Popular deductions include those for medical expenses, property tax, and mortgage interest. When it comes to choosing between the two options, you'll want to run the numbers both ways to see which one gets you the bigger deduction. And luckily, good tax software or a tax preparer will do that for you.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Research is key. Maybe that looks like seeing which tax credits you qualify for to ensure you get the biggest refund or minimize what you owe. Or maybe it's comparing which tax software would do all the work for you behind the scenes. But in any case, there are many good resources out there that make brushing up on your taxes knowledge easy. So with that, happy filing, everyone.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Thanks for having me.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Tax Day is Tuesday, April 15th this year. That's the last day people have to file their taxes before penalties and interest start to stack up. There are some exceptions to this deadline. For example, people affected by federally declared natural disasters, like the wildfires in LA, get more time to file and pay taxes.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
If you don't have all your paperwork sorted out by that April deadline, remember that you can always request an extension by tax day, which pushes out your filing deadline six months to October. But this extension is only to file your return. It's not an extension to pay your taxes. You still have to send an estimate of what you owe to the IRS by April 15th.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Estimating your taxes includes finding your total gross income from the last year, factoring in things like credits and deductions and more. Using an online income tax calculator like NerdWallet can help simplify the process.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Yeah, go check that out if you're interested. And the last deadline-related thing I'll touch on is if you're due a refund, there's no penalty for filing late, but you might want to file on time anyway to get your money back sooner. And although you might not be penalized for filing late, you may still be obligated to file a return based on the IRS's rules.
NerdWallet's Smart Money Podcast
How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes
Every year, the IRS makes what we call inflation adjustments, which means things like the tax brackets, standard deductions, certain tax credits, and more are shifted. And these shifts tend to work out in the favor of us taxpayers. We can dive into how that plays out, starting with tax brackets. Although the seven income tax rates don't typically change year to year, tax brackets do.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Yeah, that's correct. This stuff can be complicated, so it's always best to check with your employer and each state's tax and revenue resources. The rules for who has to file a return and what kind of income is taxed and when can vary. However, it is good to know that just because you owe taxes to a state outside of your home state doesn't mean you'll be taxed on the same income twice.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Every state has either what's known as reciprocity or alternatively a tax credit for taxes paid to another state to avoid double taxation. So for example, if you live in North Carolina but worked in Virginia for a few months, North Carolina would give you a tax credit for the tax you paid to Virginia.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Right. It's generally your employer's responsibility to withhold state income taxes if you're a W-2 employee. So it's not necessarily on you or the actual state to do so.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
I'd recommend keeping a record of how long you work in each state and how much you were paid when you were there. the rules around how employers withhold taxes for non-resident employees can be complicated. So having your own record of these things can help you double check that the information on your W-2 is correct come tax time.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
If questions arise, I definitely encourage you to reach out to your payroll team to better understand why your withholding was calculated as it was and if you need to be sent a corrected W-2 form.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
DIY tax software is often really user-friendly. Even if you have fairly complicated taxes, you don't have to have in-depth knowledge of the tax code to file a return. Most software programs follow a pretty simple Q&A style format and avoid lots of tax jargon. So I think it's a great option for people who are on a budget.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Even if you have to go with a paid software package, it'll likely still be cheaper than paying a pro. And with some packages, you can even upgrade to chat with a CPA if you get stuck or need some more help. And then I'd also encourage people to look into the IRS's free in-person tax preparation services. like the volunteer income tax assistance and tax counseling for the elderly programs.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Only certain taxpayers qualify, but it's definitely worth checking out.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
It really depends on whether or not you owed taxes. A little-known fact is that if you don't owe taxes, there's technically no penalty for not filing, so that may ease some people's immediate worries. However, that doesn't get you out of filing altogether.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
The IRS has a strict definition of who needs to submit a tax return based on income and other factors, so filing back taxes should be on your to-do list if you meet those requirements. On top of that, you only have three years to claim a refund. So if you fall into this category, getting on top of your taxes could result in some extra change in your pocket.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
If you do owe taxes, along with the failure to pay penalty and interest I mentioned earlier, you may also be subject to the failure to file penalty, which is 5% of any tax due up to 25% of your bill. And if your return is more than 60 days late, the minimum penalty is $510 or 100% of the tax you owe.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
And I'll also point out that the IRS reduces your failure to file penalty by the amount of the failure to pay penalty. So you just pay 5% between the two. And while the penalty for not filing maxes out after five months, you'll still have to keep paying the penalty for paying late until it hits 25% of your unpaid taxes.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Staying on top of these things can definitely be overwhelming, and I think we can all extend ourselves some grace about not having everything sorted out all the time. But you're right, I think the best way to work through it is to spend some time researching how to get out of the situation.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Penalties for not filing your taxes get worse as time goes on, so it's best to tackle things as soon as you can. Perhaps in this listener's case, that could look like setting aside a weekend dedicated to filing past year's taxes and perhaps signing up for an IRS payment plan if necessary.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
First of all, you'll want to keep track of all the documents you get in the mail that are relevant to filing your return. So W-2s, 1099s, things like that. I recommend keeping an important documents box so when it's time to file, you aren't digging through your junk drawers and wondering where you put them.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
As for how you should file your return, it really comes down to your budget and the complexity of your return. If you feel overwhelmed by filing or just prefer to leave it to the pros, hiring a tax preparer is a great choice if you have the ability to. Just make sure you vet them before working with them.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
But I think if you're comfortable with filing yourself or maybe you have a simpler return, I'll reiterate that DIY tax software is generally really user-friendly and it's how I choose to file my taxes. And shameless plug, we do have a best tax software page comparing different programs if you're not sure which one is right for you and want to see how each software's pricing and packages stack up.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Of course. Thank you for having me.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
How likely is this anyway? Right. There definitely has been a lot of chatter and uncertainty about what taxes will look like in the future. And I'm no economist, so I won't bet on whether or not those changes will at some point actually go into effect. But I will say that I'm certain no policy changes have been made that affect how we do our taxes this filing season.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
So it's still business as usual, and people should file as they normally would.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Yeah, it's really a case-by-case situation, I think. If people have the funds, and it sounds like the solicitor has savings they can pull from, I'd say that's generally the route you'd want to go. But I also get that sometimes it's just not feasible to pay your taxes in one payment.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
So another option is an IRS payment plan, which doesn't exempt you from penalties and interest for paying late, but it's still something to consider.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
If you file and you don't pay, you'll likely be hit with the failure to pay penalty, which is 0.5% of your unpaid taxes up to 25% of your whole bill. And then there's also interest to consider, which is subject to change each quarter, but it's currently 7% of any of your unpaid taxes. The failure to pay penalty, however, does get cut in half to 0.25% if you're on an IRS payment plan.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
And it's worth noting that the interest you'll pay with an IRS plan is generally less than the interest you'd be charged for putting your bill on a credit card, so the payment plan would be the lower cost option. And I'd also encourage people to see if they qualify for a first-time penalty abatement or penalty relief for reasonable cause.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
They each have their own set of criteria, but if you qualify, your penalties could be removed or reduced.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
If you have any big life changes like getting a second job, getting married, or having a child, you'll want to review your W-4 form. This is because your filing status, deductions, and dependents all play into how much tax your employer withholds from your income. However, you might not have to tweak your W-4 when you get a raise.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
This is because your employer calculates your withholding based on your earnings each pay period, not based on an estimate of what you might make throughout the year. But if you have multiple jobs or more complex taxes, you might want to review your withholdings as practice.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
Yeah, and I also want to add that another reason this listener may have a surprise tax bill is if they made money from a source that doesn't automatically withhold taxes. So think investment income or maybe a side gig.
NerdWallet's Smart Money Podcast
Last-Minute Tax Questions Answered and Tips for Keeping Your Financial Documents Safe
In these cases, you'll either want to set aside money for taxes yourself and make estimated tax payments or adjust your W-4 to have more tax taken out of your paycheck at your regular job. And like you mentioned, the IRS has a withholding estimator that can help you with the math.