Learn how you can manage your taxes and finances more effectively throughout your lifetime…
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Table of Contents
Foreword 10
Introduction 12
A Word About Taxes 15
Chapter 1 Tax Basics 21
Chapter 2 Tax Withholdings 64
Chapter 3 Understanding Tax Brackets 90
Chapter 4 Filing Status & Exactly Who is a Dependent 108
Chapter 5 Hot Tax Topics 134
Chapter 6 Understanding Capital Gains 152
Chapter 7 Adjustments, Benefits, Credits & Deductions 205
Chapter 8 Understanding Compounding & the Various Types of Income 216
Chapter 9 Tax Strategies that You Can Use to Build Wealth More Efficiently 258
Appendix A
Additional books written by Thomas (TJ) Underwood 309
Appendix B
The 3 Step Structured Approach (A Comprehensive Financial Management System) 312
BONUS SECTION: Investment Simplification & Wealth Building 339
Read Sample Chapter Below…
Chapter 5 Hot Tax Topics
Learn about some of the latest tax news so that you can avoid the tax blues…
In this chapter you will learn a “number of critical areas of tax understanding” that could help you maximize your tax position from this day forward. Furthermore, you will learn about many common tax concerns that a vast number of “tax filers” have had over the years.
To achieve more and maximize your personal income tax return it is important that you have knowledge of—and a practical understanding of how you can do the following more effectively:
Use the New Tax Rates to Your Advantage
If you are an individual and do not have majority ownership in a C corporation or S Corporation–your maximum tax rate is 37% versus the maximum for a corporation of 21%, due to the job and tax act of 2017.
That means if you have high income that puts you in the upper income tax brackets you could possibly reduce the taxation of your income by establishing a corporation or keeping your income in the corporation as opposed to receiving a salary if you now have a corporation.
There are several ways that you can strategize to lower your taxes by using the new tax rates to your advantage and it is up to you and your professional team to find ways to do just that.
If you are a business owner or desire to be one, you must understand the forms of ownership!
- Sole Proprietorship
- Limited Liability Company (LLC)
- Limited Liability Partnership (LLP)
- S Corporation
- C Corporation
You must know and understand fully that certain types of ownership allow you to shield your personal assets against the liabilities of your business.
If you are operating as a sole proprietor where you are using your social security number as your Federal ID, you are putting yourself and your family in position to be personally liable for actions that may arise out of liabilities of your business.
Whether a pass through entity or a corporation will be of greatest benefit to you will depend on your unique tax and financial position, the type of business you operate, the state that you are in, your liability (risk) exposure and the path that you desire to take to reach your goals once you lay out all of your intentions, whether you decide yourself—or you decide to use financial professionals.
IRA’s
IRA’s and other tax favored retirement plans retain those tax advantages despite the Tax Cut and Jobs Act of 2017. That means the “saver’s credit” and deductibility for a traditional IRA are still available for those who qualify.
In addition, ROTH conversions can be done regardless of your income level and ROTH IRAs still enjoy the tax-free benefit upon withdrawal if done so according to IRS guidelines. Contributions remain tax free upon withdrawal.
HSA’s
A Health Savings Account may allow you to save more and meet your health care expenses in a tax efficient manner by allowing you to:
- deduct the amount you contribute
- allow your contributions to grow tax free, and
- allow you to withdraw your earnings tax free when used for medical related expenses
Be sure to give the “triple tax benefit” of HSA’s real consideration. In addition, be aware of the expenses that you will pay to the provider of the HSA account, as expenses can eat away at your earnings. Be sure to shop for the best plan available based on your financial position and health saving goals.
Standard Deduction
The standard deduction has been increased for the 2018 tax year onward, and many of those who once itemized will find that it is no longer to their advantage to do so.
For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,000 for 2025, an increase of $400 from 2024.
For married couples filing jointly, the 2025 standard deduction rises to $30,000, an increase of $800 from tax year 2024.
For heads of households, the standard deduction will be $22,500 for tax year 2025, an increase of $600 from the amount for tax year 2024.
Singles are now at $15,000
Head of Household is now at $22,500
Married Filing Jointly is now at $30,000
Personal exemption eliminated for most—some dependents on your tax return may allow you to claim a $500 dependent exemption.
Be sure to consider the effect on your state tax refund or payment in determining whether to itemize or claim the standard deduction—as you may be surprised to find that a reduced itemized deduction at the federal level could still be to your benefit if you would get a higher overall refund or pay less in taxes when the federal and state amounts have been combined!
Itemized Deductions:
Medical
Long-Term Care (LTC) insurance that you pay, Medical Insurance that you pay, Health Care Insurance Premiums that you pay, Eye Care that you received during the year, Out of Pocket medical expenses that you pay for the year, Dental Expenses that you pay for the year, Prescription drugs that you purchase for the year, Mileage to and from your medical care destination and many other medical related expenses may all be deductible in 2025 if they exceed 7.5% of your AGI (Adjusted Gross Income–line 7 on page 2 of form 1040) and you itemize your deductions.
The AGI limit increased to 10% in 2019, however as of 2025 tax year it is at 7.5%.
Taxes
State income taxes and sales taxes, ad valorem taxes, property taxes and possibly other taxes may be deductible by you if you itemize and otherwise qualify.
Keep in mind that there are limitations on taxes in some instances—so keep that in mind—particularly if you are in a high tax state such as California, New York, New Jersey, Connecticut and several others.
Mortgage Interest
Mortgage interest deduction is now limited to $750,000 down from 1 million.
Mortgage Insurance Premiums (MIP) and Private Mortgage Insurance (PMI) are not deductible for the 2025 tax year and beyond unless Congress acts.
Charitable Contributions
New rules apply to deducting charitable contributions that are non-cash as you must provide additional documentation for donations valued over $250.
As for church donations and others that are in the form of cash, the maximum percentage that you can deduct has changed, however the required documentation is basically the same.
2% AGI Deductions Eliminated
Tax related fees, investment fees, unreimbursed employee expenses (including automobile expenses) and other 2% of AGI deductions, have been eliminated for 2018 through 2025 tax years.
Social Security Income Threshold Increases
In tax year 2018 the maximum social security wage base was $128,500—however for the 2025 tax year, that wage base will increase to $178,600 which means if you earned over $178,600 in 2025 you won’t pay a tax on the income over that amount (6.2% of the amount up to 178,600 will be taxed) when you file your 2025 taxes, the Medicare payment portion of 2.90% is still applicable however.
The Medicare portion limit did not change because of the tax cut and jobs act of 2017 as there is no limit.
Although planning proactively and keeping your tax filing current is usually the best approach to staying in good standing with the IRS, many may currently owe the IRS, and if that is you—you have options.
If you find yourself in the unfortunate position of owing the IRS, particularly if it is $10,000 or more, you have options that include the following among others:
Offer-in-Compromise—An offer in compromise (form 656 along with form 433A and/or 433B) may allow you to settle your tax debt for less than the full amount you owe. Your financial information and tax filing status can be used to see if you qualify for an OIC, and if you qualify you could see a reduction in the amount that you owe the IRS.
You would include your current filing information, assets, income, expenses and a proposed settlement amount to the IRS and if they accepted you would have a time frame to come up with the settlement amount. An application fee and initial payment are also normally required. You would normally have 2 payment options:
Lump Sum: This option requires 20% of the total offer amount to be paid with the offer and the remaining balance paid in 5 or fewer payments within 5 months of the date your offer is accepted.
Periodic Payment: This option requires you to make the first payment with the offer and the remaining balance paid in monthly payments within 6 to 24 months, in accordance with your proposed offer terms.
Installment Agreement—If you owe $50,000 or less, you may be able to use the form 9465 to request a monthly installment plan if you cannot pay the full amount of tax that you owe. You must be current on all your tax filings to make this a successful request.
Temporary Delay in Collection—A job loss or reduction in income, a federal disaster declaration in your area and other hardships could allow you to file form 433 to buy you time, as it would allow the IRS to designate what you owe as currently not collectible. Keep in mind penalties and interest may accrue, and the IRS may file a “federal tax lien” against your property to protect their interests.
If any of the above strategies are used, you may be able to stay in good standing with the IRS or “buy time” so that you can make arrangements to stay current or pay off your income tax tabulation. With all the options listed above technicalities apply, and you will have to meet those technicalities to qualify for the payoff plan.
Always Realize the IRS has the Power to Place a Lien or Levy on Property You Own
It is important that you distinguish a tax lien from a tax levy, as a lien is not a levy.
A lien secures the IRS’s interest in your property when you don’t pay your tax debt.
A levy actually takes the property to pay the tax debt, and if you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.
Current Trends
It is important that you realize that we are not in normal times as trade wars, tariffs, inflation and unusual market activity are causing concern for many.
Uncertainty in the markets in the spring of 2025 has caused even bond prices to go down! Stagflation is now a real concern as the potential for a combination of high inflation, stagnant economic growth, and elevated unemployment appears to be a real possibility.
If you are considering the purchase of a new or move-up home, be aware in advance of the $750,000 “mortgage interest limitation” or you will have to pro-rate interest (form 14900) if your mortgage loan exceeds that amount.
You want to know from this day forward that documentation and substantiation of tax matters are critical for you if you want to increase your tax savings and stay in good standing with the IRS.
It is imperative that you have a good organization system in place, and you properly track business expenses, assets, charitable contributions, mileage in all forms, and other tax, financial or business-related activities that have the potential to come under scrutiny by the IRS.
Conclusion or Key Points
It is important that you realize that many changes have occurred over the past few years as they relate to your taxes and the filing of your tax return and the potential for major changes in the future are always a possibility.
The form 1040 has a new look and now includes “Schedules” that allow you to include in income or deduct many of the items that were on page 1 of the 1040.
1040EZ and 1040A no longer exist and you must use form 1040 to file your 2018 through 2025 tax returns.
In most instances you won’t claim exemptions, however the child tax credit has gone up to $2,000 per child with up to $1,400 of the credit refundable. A Dependent credit of $500 is now available for tax filers who qualify.
Student loan interest deduction and other educational credits remain.
Whether it is the “Affordable Health Care Act” (penalty will be eliminated after the 2018 tax filing year) the “Tax Cut and Jobs Act of 2017” , The “Inflation Reduction Act” of 2022, or any other incidental changes in the tax code that will occur in future years, it is important that you put yourself and your family in position to take advantage of the changes and not let the changes take advantage of you.
Be sure to choose highly competent professionals and be sure to gain the knowledge that you need so that you can succeed.
You want to put yourself in an informed position where you know what is going on “tax wise” so that you can position yourself in a way where you can’t easily be taken advantage of.
By purchasing this book alone—you are showing a real commitment toward success in your future and you are on a path to maximizing your tax knowledge in a way that will put you and your family in position to achieve more throughout your lifetime.
You will put yourself in position to know how the recent tax changes over the past few years or future tax changes will affect you and your family—thus giving you the opportunity to plan proactively and improve the likelihood that you will achieve your goals.
You will know how to respond to tariffs and other market activity from a better vantage point.
You no longer must let your ignorance of the tax laws, immaturity in approaching your finances, insecurity in approaching your finances or the inability to approach your finances due to fear–lead to idleness and not moving forward in the financial realm of your life!
Today is the day that the Five “I’s” die—and you more than just try!
Today is the day that you pursue a new road to success that has fewer turns and less stress and moves your forward in a way that allows you to give it your very best!
All the best to your new tax knowledge and new road to success…
Purchase Taxing Subject Matters Made Easy Today and Transform Your Life…
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