Archives for April 2019

New Here? Get the Free Newsletter

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning. Join over 21,000 email subscribers:

Articles are published Monday and Friday. You can unsubscribe at any time.

Investing Blog Roundup: Financial Planning for Young People

Conventional wisdom states that financial planning is simpler for younger people than it is for people nearing or in retirement.

Michael Kitces argues to the contrary. The portfolio itself may be simpler, but for an actual financial planner (i.e., somebody doing financial planning rather than just portfolio management), there’s still plenty going on, because life circumstances are changing at a fast pace. Insurance needs change as family size or work status changes. Advice could be appreciated regarding a first home purchase. Changes to employment, which are especially common in the early years of a career, require adjustments to plans.

Other Recommended Reading

Thanks for reading!

What To Do If You Don’t Have to File a Tax Return (Tell the IRS?)

A reader writes in, asking:

“As a family courtesy, I recently began completing/filing taxes for two sets of elderly relatives with very small incomes (Social Security, pensions, IRAs).  In reviewing their past years returns, I found they have not had to pay taxes for several years, with their total incomes significantly below the thresholds established by the IRS and state.  Barring a winning lottery ticket, year after year, they owe no taxes, plain and simple.  My understanding from reading the tax code is that they can stop filing altogether, but this idea makes them nervous and even I – after a lifetime of filing taxes – find it contrary to my ‘conditioned response.’  While the codes on ‘Who Must File’ are clear, should we send a one-time letter to the IRS informing them of our intent to stop filing?”

If a person does not need to file, there’s no need to send the IRS any letter indicating such. They can simply not file, and if the IRS later contacts them about the lack of a return, they can reply with a letter indicating the reason (i.e., gross income below applicable threshold and did not meet any of the other “must file” reasons). And, if the person wanted to do so, they could include in that letter a statement indicating that, barring unforeseen circumstances, they will continue to be below the applicable threshold going forward.

I would be cautious about getting into a “not filing” habit though. Circumstances can change in the future. And that applies not just to personal circumstances but also tax law-related circumstances. That is, the rules may change in the future — potentially lowering the “must file” threshold*, potentially adding a new type of tax that the person would have to pay even with a low income, or potentially adding a new refundable credit which the person could claim if they filed. In other words, I would make a point of conscientiously checking every year whether there are any circumstances that would either require filing or make filing beneficial.

As a separate point, even when filing isn’t required, tax returns (even if simply prepared and not actually filed) can often serve as a useful overall record of the person’s finances. A lack of records has a tendency to make things harder at various times down the road — whether for the person in question, heirs, or executors.

*In fact, as the law is written right now, the “must file” threshold will go down significantly in 2026 once the temporary increase in the standard deduction expires.

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"

Investing Blog Roundup: Getting an Accurate Benefit Estimate from Your Social Security Statement

The benefit estimate on your Social Security statement assumes that you retire and file for retirement benefits on the same date — and the SSA’s online calculators make the same assumption. So how can you calculate a benefit estimate if you plan to retire prior to (or after) filing for benefits?

Short answer: by using either of two calculators from the SSA and a very slight bit of arithmetic.

Other Recommended Reading

Thanks for reading!

Repaying the Advance Premium Tax Credit (Form 8962) as a Dependent

A reader writes in, asking:

“I have a question regarding Form 8962 (Premium Tax Credit). I am a dependent, received Advance Premium Tax Credit, and have to file 8962 since nobody will actually be claiming me as a dependent. Last year it was simple because publication 974 provided clear instructions for my situation. There was a section that provided instructions for people claiming no personal exemptions, as would be the case for somebody who is a dependent.

This year those instructions are absent since nobody can claim personal exemptions. I’m confused about how to proceed, especially regarding lines 1-5.”

Firstly just to make sure we’re clear on this point: people still can claim dependents, even though the exemption amount is currently set to zero. (Dependents might be claimed for the child tax credit, American Opportunity Credit, or for other assorted purposes.)

If you are claimed as somebody’s dependent, then you are not eligible for the premium tax credit, and you do not file Form 8962. Rather, it is the person who claims you as a dependent who would file Form 8962 for the purpose of calculating any premium tax credit and, if necessary, repaying any excess advance premium tax credit.

If you are confident that nobody is claiming you as a dependent for the year, but you could be claimed as somebody’s dependent for the year, then you would fill out Form 8962 to indicate that you were not eligible for the premium tax credit (because you can be claimed as somebody’s dependent). That is, you would enter zero as your family size (assuming you are not married). And the household income (i.e., MAGI of the people in the household) is zero, because the family size in question is zero. And because the premium tax credit is not allowed to anybody who could be claimed as a dependent, the premium tax credit (line 24) is zero. And then lines 27, and 29 would ultimately reflect the fact that any advance premium tax credit is excess advance premium tax credit.

Now, those are the rules, and that is how I would personally fill out the return in such a situation. But I’m sure I will receive several emails pointing out the following if I do not mention it: some people would encourage you to not check the “I can be claimed as somebody’s dependent” box if nobody else is actually claiming you as a dependent — because if nobody claims you as a dependent, it would be hard for the IRS to be aware of the fact that somebody could claim you as a dependent. And if you are not somebody else’s dependent, then you could be eligible for the premium tax credit.

But again, the Code sections in question (36B, 151, 152) are very clear on this point: if you could be claimed as a dependent, you are not eligible for the premium tax credit. And I would suggest filing accordingly.

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"
Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. I am not a financial or investment advisor, and the information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2019 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My new Social Security calculator: Open Social Security