It’s that time of year to start asking yourself what you’ll do with your 2023 tax refund. Many are excited to get some cash back but sadly blow through the funds as quickly as they came. It’s time to make a plan on what to do with the money before it gets into your hands. That way, you’ll be able to make better choices and set yourself up for a successful year!Continue reading
It’s a brand-new year, which means that tax season is upon the nation. You still have until April to figure out your taxes, but the new laws may slow your progress this year. Don’t worry about your 2019 taxes. Simply follow a few tips in order to ease any tension. The new rules will make sense as you get accustomed to the enhanced forms and various deductions.
Get started on your taxes with these tips and tricks.
Here is my second stock photo attempt, just in time for tax season. This one didn’t require any expensive props either but I did have to use my son’s glue stick to hold the sheets together. Feel free to use this image, just link to www.SeniorLiving.Org
Filing taxes can strike fear into the heart of even the bravest people. After all, no one wants to come under the scrutiny of the Internal Revenue Service or be flagged for an audit.
When income is low and taxes are simple, preparing your own return with the help of tax preparation software is relatively straightforward and the risks of being chosen for audit is usually very minimal. However, there are many cases, even when your annual income is low, that hiring a tax professional to prepare your tax returns is a much smarter and safer option. Continue reading
However, there are many myths about tax audits that are created out of thin air, most of which encourage more fear than is truly necessary.
Myth: All tax audits are a matter of life and death
The truth about most tax audits is that they are a discrepancy of records. In many cases, the IRS is simply stating that its records do not show the same thing that you reported on your tax forms.
If it is a case of a mistake on their side, you send in the information, and you never even have to come in to see an agent.
Myth: 10% or more of people are audited in any given year
The truth is that less than 1% of people in any given year are audited. The IRS does not keep a tally on the percentage of people that it audits in any given year.
If there are more people who do not keep appropriate records, the more people will be audited that year. If there are less people that do this, then less people will be audited.
There is no such thing as an “audit quota.”
Myth: Having a professional file your taxes for you makes you completely audit proof
The truth of the matter is that you are responsible for all records that have your name on them no matter who files them.
Your professional filer may offer some sort of insurance for help with your representation if you get audited, but the final responsibility falls on you to correct any discrepancies in the records between you and the IRS.
Myth: If you keep your income below at certain threshold, you will not get audited
The IRS has been hiring more people to conduct more audits because of the discrepancy that it is found with records in the past.
However, many people believe that most of these agents are looking for people above a certain income threshold. This is not the case.
Additional audits are being conducted across the board, and just because you do not burn above a certain arbitrary threshold does not mean that you cannot be audited by the IRS.
Myth: If you file for certain deductions, you stand a better chance of being audited
Many people do not take deductions to which they are absolutely entitled because they believe that taking them will raise some sort of “red flag” with the IRS.
The truth is that any deduction that is in conjunction with the law is a deduction that you should take. IRS agents do not determine an audit simply based on the name of a certain deduction.
If you understand the true nature of what IRS audits are meant to do, you will realize that they are nothing to be scared of. Make sure that you keep all of your records as thorough as possible and report according to the law as closely as you can.
If this is your method of filing taxes with the IRS, then you will certainly be able to handle any queries that they may have about your records even if you do get audited at some point in the future.
Around this time of the year, you can run into a lot of bad advice, so here’s a list of some of the most common tax myths that you should avoid:
Myth #1: Filing Taxes is Voluntary
Although this myth may seem counterintuitive, it’s surprising how many people are actually under the impression that filing taxes is completely voluntary because Form 1040 in the instruction book describes the tax system as “voluntary”.
However, Uncle Sam requires everyone to file taxes, even if you haven’t had any income all year.
Myth #2: Animals can Be Claimed as Dependents
Many people are under the impression that anything that’s alive and in your care can be claimed as a dependent, but that’s not the case.
No matter how you love your pet, you aren’t allowed to claim them as dependents.
And while it may be true that pets receive more than half of their financial support from their owners, they’re still not human, and you still can’t file taxes on an animal.
Myth #3: Illegal Activity is Not Taxable
Although it may not make much sense, criminal activity is taxable.
Regardless of whether you are a bank robber, drug dealer or con artist, the government still wants their cut of your income.
No matter how good you are at hiding your illicit activities, the government will eventually find out about it, and tax you on it. Al Capone is a prime example.
Myth #4: Money Made On the Internet is Tax Free
Since many people doing business online don’t report taxes for their income made online, it’s not hard to see how this rumor got started.
However, regardless of whether you generate money online or at a traditional job, the IRS still requires you to declare that income if it’s over 400 dollars per year.
Myth #5: I Don’t Make Enough Money to be Audited
The amount of money you make doesn’t have as much to do with being audited than you may think. There are many more factors that could possibly send up red flags when it comes to a tax audit.
And while it’s true that individuals who make more than 100,000 dollars per year get audited about twice as much as those who make less than that, those who make under 100,000 dollars per year still have a one percent chance of being audited, which is the national average.
To stay safe, it’s best to save any relevant receipts of anything that could be considered questionable income for three years.
Between now and the magic date of April 15, millions of Americans undergo the annual ritual of gathering documents, saving receipts, filling out forms, navigating the ever-changing rules and, hopefully, ending up with a refund.
If this adventure leaves you scrambling for help, you’re not alone. According to IRS figures, over half of all taxpayers in 2014 paid someone to do their returns, while another one-third used tax software.
Unless your taxes are quite simple or you have great numerical and research skills, the tax code is simply too complicated to tackle once per year. This has led to the growth of a massive tax-preparation industry over the past six decades, since the IRS stopped preparing returns for free in the mid-1950s.
Where To Start
This is a major purchase with long-term consequences. Start by asking around. Work is a good place to start, since many of your co-workers may have similar tax situations.
The Yellow Pages has an entire section filled with practitioners that compete for your business. Interviewing a few of them will give you an idea of their competence, fees and service level.
Several national tax preparation companies serve millions of taxpayers, including H&R Block, Jackson Hewitt, Liberty Tax and others. These companies hire mostly seasonal preparers and train them every year on the latest rules and software. All have both new and experienced preparers to choose from. When contacting them, look for a preparer with the experience that fits your situation.
Accounting and CPA firms are often open year-round and may provide a range of services, including payroll, bookkeeping, auditing and more. Taxes may or may not be one of their specialties, so prospective clients should ask specifically about their tax practice.
Higher Level Help
Several professional designations are used in the tax industry.
An Enrolled Agent is most desirable. This is a person who has passed a difficult exam and is qualified to practice before the IRS.
A Tax Attorney is a licensed, practicing attorney specializing in tax law.
These two professionals may represent taxpayers with the IRS in case of an audit. They are best hired for handling unusual or complex tax situations and are not typically needed for everyday tax returns.
What To Expect
Any competent tax preparer will ask about your personal situation, including marital status, dependents, work, school, home ownership and many other factors covered in the tax code.
Since this is sensitive personal information, taxpayers should look for a preparer with whom they feel confident and have rapport.
Many tax preparers and offices are available only from January through April. A reputable preparer offers tax help throughout the year, either personally or through their firm.
Do Your Homework
Like other occasional purchases, we choose tax services to take care of an essential need in our life.
It is critical to understand that no matter who prepares the return, the taxpayer is ultimately responsible for the results.
Look carefully, ask questions and pick the professional that best fits your needs.
Nobody likes to think about doing their taxes. Many people find it an unpleasant experience best dealt with at the last minute. This approach may provide a few months of avoidance pleasure, but could cause problems.
It’s important for people to realize there are benefits to doing your taxes early.
Waiting until the last possible moment to file taxes can be stressful. This stress can be avoided by doing taxes early.
All the proper forms can easily be obtained further away from the filing deadline. When done early, there is no shortage of tax forms. People who prepare taxes are not yet stressed by doing last-minute returns for clients.
Doing taxes early provides extra time to review them and detect any problems. If a mistake is found, it can be easily corrected prior to the filing deadline. Doing taxes correctly can avoid a lot of unwanted stress.
Avoid Late Filing Penalties
The penalty for filing taxes late with the IRS is usually 5 percent of the unpaid taxes for each month or portion of a month the tax return is late. This penalty starts and begins to increase the day after tax returns are due. It usually isn’t more than 25 percent of the unpaid taxes. If a person files their return but does not pay their taxes owed by the deadline, they can face a failure-to-pay penalty. This amount to ½ of 1 percent of the unpaid tax balance.
Know Tax Liability
When a person does their taxes early, they may find that they owe the government a certain amount of money. In some cases, a person may need to arrange for payment.
Doing taxes early will enable a person to make the right payment amount. Depending on when they’re done, a person will have the necessary time to prepare to meet their tax obligation.
Receiving Refund Early
The sooner a person files their taxes, the quicker they get their refund. Waiting until the last minute may make a refund not available until summer.
There are many people who file their taxes late. When this is done, the time to process the tax refunds takes more time.
The IRS is usually overwhelmed with processing tax returns by the end of the tax filing season. This means issuing tax refunds take a longer time.
Avoid Identity Theft
Most people don’t realize there is a high rate of identity theft that occurs during the tax refund season. One of the best ways to avoid this problem is to file taxes early. This decreases the opportunity for someone to file a tax return in another person’s name.
When this does happen, the IRS will notify the person who filed their taxes earlier that another return has been filed in their name.
Avoid Post Office Problems
The IRS says that over 70 percent of taxpayers in the United States file their tax returns electronically. This means that approximately 30 percent of tax paying citizens are using the U.S. Post Office to mail their tax returns.
Some people mail their tax returns out of habit, others by design, and some because their circumstances require it. There are taxpayers who mistakenly believe paper tax filing decreases their chances of being audited.
Waiting until the last minute to mail a tax return could lead to a number of unexpected problems such as crowds, traffic, closing times and more.
Avoid Amended Returns
There are times when employers make mistakes. Companies have been known to make mistakes when they report their employee’s wages to the tax authorities.
If a person files their tax return based on incorrect information, they will have to refile an amended return with the correct information. When a tax return is filed early, a mistake like this can also be addressed and corrected early.