As the cost of living continues to rise, it is becoming increasingly difficult for single individuals to live comfortably. Without the safety net of a second income, the need to manage finances as a single individual is more important than ever. The process comes with unique benefits and challenges, both throughout the year and during tax time.
Budget Tips for Single Individuals
There are countless budget strategies you can use as a single individual. Some of the most popular ones are the 50/30/20 budget and the zero-based budget.
50/30/20 Budget
One of the most popular methods is the 50/30/20 budget, in which you spend about half of your after-tax income on necessities. This includes bills, groceries, housing, and all the other items that are necessary to live. Thirty percent of your income should then go to your “wants”, like dinners, entertainment, and travel. The final 20% should be designated for savings and debt repayment. These percentages can be altered to fit your own specific needs.
Zero-Based Budget
In the zero-based budget strategy, every dollar you earn is allocated to a specific expense. A certain dollar amount goes to housing, another goes to utilities, another goes to debt, and so on until every dollar in your paycheck is assigned to one expense. At the end of the pay period, whatever is left over is sent to your savings. This strategy is especially helpful in preventing impulse spending.
Retirement Tips for Single Individuals
The key to retirement savings is understanding that the earlier you start, the better. Let’s say two people begin saving $100 per month. One begins at age 25 and the other begins at age 35. The one who begins saving earlier will have nearly twice as much savings by age 65. Prioritizing any portion of your income for retirement can really maximize your savings, especially if you take advantage of employer contributions.
Automate and Maximize Your Saving
Having an emergency fund that can cover three to six months of expenses is crucial if you don’t have a second income to rely on if you lose your job or cannot work. Automating your savings can help you reach your goals faster. You can create automatic bank account transfers or even use mobile apps that schedule money transfers from your checking account to your savings account or online account. While you’re at it, you can maximize your savings by opening a high-yield savings account that will accrue interest at a higher rate than a typical savings account.
Tax Relief for Single Individuals
During tax season, it’s important to know which tax bracket you’ll fall into as a single filer. The federal income tax bracket for 2023 is as follows:
10%: $0 – $11,000
12%: $11,001 – $44,725
22%: $44,726 – $95,375
24%: $95,376 – $182,100
32%: $182,101 – $231,250
35%: $231,251 – $578,125
37%: $578,126 and up
Single filers do not qualify for deductions that many families take advantage of, so it’s also important to learn which ones you are eligible for in order to reduce your taxable income, and even your tax bracket. Remember, the tax bracket ranges above are based on taxable income, and not the actual amount of earned income you receive. In other words, the tax bracket is based on your income after deductions and credits are taken. Doing taxes on your own can be intimidating and stressful. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
As the most populous state in the union, California attracts new residents from all over the country and around the world. From the glow of Tinseltown to the technological buzz of Silicon Valley, dreamers and entrepreneurs alike are drawn to the state. But California is also one of the most expensive states to call home – 3rd highest to be exact. California tax rates are some of the highest in the nation.
Businesses in California are not spared from the tax hammer. California imposes corporate income taxes on “C” corporations and limited liability companies that operate like corporations. As a result, many entrepreneurs who operate small businesses in California are subject to quadruple taxation – double taxation from Uncle Sam and double from California.
But as of 2014, California has enacted a series of tax breaks which will award millions of dollars in tax credits to qualifying businesses. These tax incentives were designed to lure businesses to re-locate or keep their base of operations within the state.
Aerospace Industry Gets a Break with State Tax Credits
One business field seeing some high-profile tax breaks in California is the aerospace industry. California was at one point in time the center of the aerospace industry, before the US government was forced to make drastic cut-backs in the 1990’s, essentially reducing the workforce by more than 50% of its workers. California Governor, Jerry Brown, has been trying to put together an incentive package of sorts to entice some of the larger employers to come back to the state, which would improve employment rates, bring a huge influx of new business and cash flows, as well as help off-set the current financial problems that California is facing.
The Aerospace Tax Clarification Act, which was passed in April, cleared up some ambiguity regarding the classification of rocket propulsion systems. This new act clarifies that these rockets qualify for an existing business tax exemption, rather than being classified as a taxable business supply as the prior law read.
“The space commercialization industry is not only developing some of the most advanced space vehicles in the world,” stated Assembly member Al Muratsuchi, “but is also creating thousands of local, high-paying manufacturing jobs.” This law was a direct nod to the Space Exploration Technologies Corporation, a Los Angeles based enterprise founded by Tesla billionaire, Elon Musk. The bill was also supported by Northrop Grunman, the Commercial Spaceflight Federation, Aerojet Rocketdyne Inc., a division of GenCorp Inc. and Lockheed Martin.
Governor Brown is also pushing for the aerospace bill to be expanded to cover the automotive industry. California is one of several states currently bidding for Tesla to build its proposed $6 billion factory to manufacture a new auto battery, known as the “gigafactory”, here in the state. This addition to California would mean the creation of at least 6500 new jobs as well.
Additionally, Governor Brown signed a law in July 2014 which grants a 17.5 percent tax credit on wages for workers hired to build aircraft. The bill serves as an incentive to score lucrative contracts for high-paid aerospace jobs within the state. There was also a 10-year tax exemption granted for the manufacturing of equipment used for the space travel industry.
Is there a tax credit for small businesses in California?
Under the California Competes program, a full 25 percent of the $29 million in tax credits will be reserved to small businesses with gross receipts of less than $2 million annually. Huge corporations are not the only beneficiaries of the new tax incentives in California. The state recently instituted the California Competes tax credit program, designed to provide financial incentives for businesses to relocate to California or for businesses within the state to remain and add jobs.
The California Competes tax credit program replaces the former Enterprise Zone program, which was eliminated in 2013 due to it being wasteful and inefficient. Credits allocated by the program are tentatively set at $30 million for fiscal year 2013/14, $150 for fiscal year 2014/15 and $200 million for each fiscal year after that through 2018. The state’s website lists the following criteria by which California Competes tax credits will be awarded:
The number of jobs created or retained
Total compensation, including wages and fringe benefits
Investment in the state
Unemployment or poverty rates where businesses are located
Other state and local incentives available to the business
Incentives from other states
Duration of commitment of the business or project
Overall economic impact
Strategic importance of the business to the state, region, or locality
Future growth or expansion opportunities
Expected benefit to the state in excess of benefit to the business from the tax credit
The California Competes Tax Credit is a non-refundable tax credit, meaning that businesses cannot receive cash back even if the credit is greater than what they would otherwise owe in corporate income taxes. But excess funds from the credit can be carried forward for as long as five years, or until the excess funds are exhausted, whichever is sooner.
Other Business Tax Incentives in California
Other tax incentives for businesses that locate or expand within the state of California include the Manufacturing Equipment Sales Tax Exemption and the New Employment Credit program. Each program is for businesses located within designated Enterprise Zones, or areas that are struggling economically.
The sales tax exemption allows eligible businesses to exclude the State’s portion of the sales and use tax (currently 4.19%), from the first $200 million in equipment purchases made between July 1, 2014 and June 30, 2022. This program will generate significant savings for eligible businesses, allowing them to pay a reduced sales and use tax rate of 3.3125% on qualifying equipment purchases.
The New Employment Credit program allows eligible businesses to receive a credit that may be taken against corporate income tax. This credit may be taken for all qualified employees hired on or after January 1, 2014. The amount of the tax credit equals 35% of the qualified wages paid for each new full-time employee hired, making a potential tax break of up to $56,000 or more per new employee over a five-year period.
For a newly hired employee to qualify the business for the New Employment Credit, they must fall into one of the following categories:
Unemployed for 6 months or more (excluding students and self-employed workers) either without a degree or having completed a degree more than 12 months before being hired
Veterans separated from active duty for less than 12 months
Earned Income Tax Credit (EITC) recipients during the previous year
Ex-offenders convicted of felonies
Current CalWORKS or county general assistance recipients
Attracting New Business with Tax Incentives
Many Californians approve of Governor Brown’s latest attempts to keep California in the running when it comes to attracting new businesses and keeping the existing ones from moving to another state that offers better business incentives. California is beginning to offer many appealing incentives to businesses, including State Tax credits, new employee credits, green tax incentives, as well as energy and transportation credits. When combined with available Federal tax credits and discounts, California can be a very profitable place for business owners to call home.
Below is a list of some additional tax incentives and tax credits currently offered in the state of California.
Qualifies rocket propulsion systems for an existing business inventory tax exemption
California Motion Picture and Television Production Credit (AB-1839)
20% of expenditures for a qualified motion picture and 25% of production expenditures for an independent film or a TV series that relocates to California
Manufacturing Equipment Sales Tax Exemption
Allows businesses to exclude the state share of sales tax (4.19%) from the first $200 million equipment purchases.
If you are eco-conscious, you probably sort your disposables for recycling, wash your clothes in cold water, carry reusable shopping bags to the grocery or perform other environmentally-friendly actions. But did you know that you may also be eligible to receive tax credits and deductions from Uncle Sam? While tax breaks for going green are not nearly as generous as they were in past years, it is still worth your while to investigate possible savings from the IRS for projects that you plan to carry out anyway.
Make Home Improvements
Did you recently replace one or more drafty windows or reinforce the insulation on your home? If so, you may qualify for tax credits through the Non-Business Energy Property Credit, which covers 10 percent of costs associated with purchasing and installing qualified energy-efficient insulation, doors, metal and asphalt roofs and windows.
The credit is also available for non-solar heating, ventilating and air conditioning (HVAC) systems, biomass stoves and non-solar water heaters. A maximum of $200 in credits can be claimed for window installation, with a $500 lifetime limit in total credits. The credit can only be applied to improvements made on your existing primary residence located within the United States. The Non-Business Energy Property Credit expired at end of December, 2013; new projects will not qualify unless Congress votes to renew the credit.
Update to Energy Efficient Appliances
Have you resorted to showering with cold water to save money on your utility bills? Perhaps you should consider installing an energy-efficient solar hot water heater.The Residential Energy Efficient Property Credit covers up to 30 percent of the cost of purchasing and installing a solar hot water heater, along with costs associated with solar electricity arrays, residential wind turbines and geothermal heat pumps.
There is no upper limit to the amount of tax credits you can claim, and the credit is applicable to new and existing residential construction. You can also claim up to 30 percent of the cost of installing residential fuel cells and microturbine systems up to a limit of $500 under the program. The Residential Energy Efficient Property Credit remains in effect through the end of December 2016, so you have plenty of time to make those improvements.
If you missed out on the recent Cash for Clunkers program, you may still have a chance to collect tax breaks for buying an energy-efficient car – as long as the car you buy is either a plug-in hybrid or an all-electric model. The Plug-In Electric Drive Vehicle Credit (IRC 30D) applies to four-wheeled passenger vehicles acquired by individuals and businesses after December 31, 2009. Some two-wheeled and three-wheeled vehicles acquired after December 31, 2011 and before January 1, 2014 also qualify for the program. Tax credits for non-plug-in hybrids, diesel-powered vehicles and alternative fuel vehicles (AFVs) expired at the end of 2010.
You may claim $2,500 for all eligible vehicles. In addition, for a vehicle that draws what the IRS calls “propulsion energy” from a battery with a capacity of at least 5 kilowatt hours, you may claim an additional $417. You may claim an additional $417 for each additional kilowatt hour capacity up to a maximum credit of $7,500.
The IRS will begin phasing out the credit over a one-year period beginning with the calendar quarter following a calendar quarter during which a specific manufacturer sells at least 200,000 qualifying vehicles in the United States. (The clock starts after December 31, 2009). During the first two quarters of the phase-out period, individuals who purchase qualifying vehicles may claim 50 percent of the applicable credit; during the second two quarters of the phase-out period, taxpayers may claim 25 percent of the applicable credit. No credit may be claimed after the end of the phase-out period.
As of January 2014, there is little danger of sales triggering the phase-out stage of the Plug-In Electric Drive Vehicle Credit program. The most popular plug-in electric car, the Chevrolet Volt, has sold approximately 56,000 units since it was introduced to the consumer market in December 2010. (Chevy representatives made an announcement at the 2014 Detroit Auto Show that mass production of the all-electric Volt has been suspended; instead, the car will be reclassified as a “niche” model targeted for specific audiences, much like the iconic Corvette.) The Ford Focus electric model had sold just under 21,000 cumulative units in the United States as of November 2013, according to the IRS website.
How to Claim Your Tax Breaks
To claim tax breaks for home improvements and energy-efficient appliances, file Form 5695, Residential Energy Credits.
To claim tax breaks under the Plug-In Electric Drive Vehicle Credit program, individual taxpayers submit Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit along with their federal income tax returns. Under the American Recovery and Reinvestment Act (the “stimulus”), individuals who purchase qualified vehicles during 2010 or later may apply the credit toward payment of the Alternative Minimum Tax (AMT), if they are subject to the tax. To claim the credit for vehicles purchased for business use, submit Form 3800, General Business Credit.
Going green doesn’t reap the same rewards it used to, but there’s still money on the table if you’ve made any of these changes. Don’t let these tax credits fall through the cracks!
